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Cement Marketing Co. Vs. A.V.R. Krishnamurthy - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case Number Writ Petition No. 27/5 of 1955
Judge
Reported in[1956]7STC762(AP)
AppellantCement Marketing Co.
RespondentA.V.R. Krishnamurthy
Appellant Advocate R.J. Kolah and ; N. Narasimha Iyengar, Advs.
Respondent Advocate B. Narahari Sastri, Government Adv.
DispositionApplication allowed
Excerpt:
.....for the period 1st june, 1954, to 31st december, 1954, on the very sales on which the associated cement companies ltd. a perusal of clauses (i) and (2) of the agreement dated 21st april, 1954, clearly inclined us to the view that the petitioners were merely sales managers acting for the associated cement companies ltd. the sales manager shall be entitled to enter into contracts for sale, submit bills for sales of cement to be made by the companies, receive payment of the same and do all acts and things that may be necessary to manage effectively on behalf of the companies all contracts of sales of cement effected as aforesaid, clause (2). all contracts for sale of cement entered into by either of the companies direct or through or in the name of its sales manager aforesaid prior to the..........of demand month by month. the petitioners contend that they are the sales managers of associated cement companies ltd., that by virtue of an agreement dated 4th june, 1942, made between the associated cement companies of the first part, the patiala cement companies ltd., of the second part, the rohtas industries ltd., of the third part and the dalmia cement ltd., of the fourth part on the one hand and the petitioners on the other, they were the sole and exclusive sales managers for the sale of the cement produced by the above referred companies during the period of that agreement from 1st january, 1944, for a period of ten years. it appears that in 1948 the dalmia group, that is, the rohtas industries ltd., and the dalmia cement ltd., retired from the agreement leaving the associated.....
Judgment:

Jaganmohan Reddy, J.

1. This is a petition for the issue of a writ of certiorari, mandamus and or prohibition, as the case may be, for quashing the orders of the Sales Tax Authorities dated 18th January, 1955, 16th March, 1955, and 26th May, 1955, and the notices of demand dated 28th January, 1955, 18th February, 1955, 16th March, 1955, an 1 26th May, 1955, issued by the first respondent, Sales Tax Officer, 8th Circle, Secunderabad and to prohibit the said respondent, his servants and agents from enforcing or taking any proceedings in enforcing the said orders of assessment and notices and to direct the said first, respondent from continuing to levy assessment and issuing notice of demand month by month. The petitioners contend that they are the sales managers of Associated Cement Companies Ltd., that by virtue of an agreement dated 4th June, 1942, made between the Associated Cement Companies of the first part, the Patiala Cement Companies Ltd., of the second part, the Rohtas Industries Ltd., of the third part and the Dalmia Cement Ltd., of the fourth part on the one hand and the petitioners on the other, they were the sole and exclusive sales managers for the sale of the cement produced by the above referred companies during the period of that agreement from 1st January, 1944, for a period of ten years. It appears that in 1948 the Dalmia group, that is, the Rohtas Industries Ltd., and the Dalmia Cement Ltd., retired from the agreement leaving the Associated Cement Cos., and Patiala Cement Co., to continue the arrangement under the original agreement.

2. After the Hyderabad General Sales Tax Act was promulgated in 1950, the Sales Tax Authorities held the petitioners to be dealers under the provisions of the said Act on a construction of the aforesaid agreement and made two assessments for sales tax one on the Associated Cement Companies and the other on the petitioners, that having regard to the fact that Dalmia group retired from the agreement and probably because of the levy of two sales taxes, the whole matter was considered by the Associated Cement Companies and the Patiala Cement Co., on the one hand and the petitioners on the other which resulted in a new agreement being executed on 21st April, 1954, between the aforesaid parties whereunder the Associated Cement Companies and Patiala Cement Co., appointed the petitioners as the sole and exclusive sales managers with effect from 1st August, 1953, for a period of ten years, and that under the agreement the only function of the petitioners is to act as sales managers of the Associated and Patiala Cement Companies. It is alleged that the petitioners make no profit whatsoever out of their function as sales managers and that all contracts with purchasers are direct contracts between the said principal companies acting through their sales managers, the petitioners. In spite of the aforesaid facts the petitioners state that since the Sales Tax Officer was claiming double tax, the Associated Cement Companies charged sales tax from their customers with the following condition attached to their bill :

The point whether two sales or only one sale are involved in our supplies is under consideration of the Sales Tax Authorities. Pending decision of this issue we have been making an extra collection by way of deposit. If the decision is that only one sale is involved and if the authorities do not insist upon payment of the two taxes under any provision of the Act/Rules but permit us to refund the amount to our buyers we shall pay back the amount to you. If in the meantime, i.e., pending decision, we have to pay the money under protest we shall pay it back to you only if and when we ourselves get it back. If for any reason the authorities refuse to pay it back our obligation to make the refund will not arise. Finally if the authorities decide that two sales are involved we shall of course have to pay over the amount to the authorities and no question of refund will arise.

3. The petitioners further state that they registered themselves as dealers in view of the attitude taken by the Sales Tax Authorities under protest till June, 1954, and that after the agreement was entered into the petitioners intimated the aforesaid facts on 12th July, 1954, and requested them to cancel their registration as dealers and at the same time they stopped making any returns in addition to the returns made by the Associated Cement Cos., through the petitioners as sales managers, sending a copy of the agreement and explaining that they were sending only one return as sales managers of the Associated Cement Cos., and not two returns. The petitioners again explained to the Sales Tax Authorities by their letter of 27th January, 1955, that there could be no question of two sales and two returns and two taxes and invited their attention to the judgment of the Madras High Court delivered on 14th April, 1954, in the case of Tata Iron and Steel Co., Ltd. v. State of Madras [1954] 5 S.T.C. 382, as supporting their view that although they had taken by way of deposit a further amount which was collected not as sales tax, contending that even if the tax was so collected, they were not bound to pay the same to the Sales Tax Officer as there was only one sale in the matter and no double tax was leviable or payable. But in spite of their contention it is stated that the Sales Tax Officer made an ex parte best judgment assessment for the period 1st June, 1954, to 31st December, 1954, on the very sales on which the Associated Cement Companies Ltd., had made returns and paid tax, that the petitioners have paid the tax under protest and filed an appeal to the Deputy Appellate Commissioner, that in spite of the Associated Cement Companies paying the tax for several periods notices were being issued to the petitioners who have filed appeals against the illegal assessment orders passed against them, that even now the first respondent threatens to continue levying such wrongful and illegal assessment and issuing notices of demand month by month although normally the assessments are levied year by year and that unless the first respondent is restrained by a writ from levying further assessments the petitioners will be put to delay and trouble and expenditure of filing an appeal against every monthly assessment.

4. We do not intend to recapitulate the further grounds urged by the petitioners in paras 14 to 22 of their petition in support of their contention that they are the sales managers of the Associated Cement Companies Ltd., because the Deputy Sales Tax Commissioner has since the filing of this petition appears to have held by his order dated 11th August, 1955, (as is evident from the counter of the respondent, Sales Tax Department, dated 28th September, 1955, attaching the original order) that from the balance sheets, etc., submitted by the petitioners they are merely sales managers acting on behalf of the Associated Cement Companies Ltd., getting remuneration and are not independently consitituted legal entities effcting purchases from the Associated Cement Companies Ltd, and that therefore the question of taxing the petitioners during the period under dispute does not arise. The Deputy Sales Tax Commissioner, however, has held that the petitioners _should remit the amounts collected by them by way of sales tax from the customers,

5. In the counter the respondents raised the plea which was, however, not pressed seriously before us, that the petitioners should have exhausted all the remedies before filing a, writ petition. It is true that if a remedy is provided under a statute that remedy should first be exhausted before a writ petition could be presented ; but that does not preclude this Court in exercising jurisdiction in a fit case where grave injustice is being caused and if not remedied immediately would cause hardship and harassment to the party. This is, in our view, a fit case in which we intend to exercise our jurisdiction.

6. It is admitted by the department that the petitioners are merely sales managers acting for the Associated Cement Companies Ltd., and as such cannot be made the subject-matter of levy of sales tax with respect to the transactions which they enter on behalf of the Associated Cement Companies Ltd. A perusal of clauses (I) and (2) of the agreement dated 21st April, 1954, clearly inclined us to the view that the petitioners were merely sales managers acting for the Associated Cement Companies Ltd., and could not be made liable for second sales tax on the transactions entered into by them on behalf of the Associated Cement Companies Ltd. Clauses (1) and (2) are in. the following terms :

Clause (1). Each of the said companies does hereby appoint the Cement Marketing Company of India Limited to be its sole and exclusive sales manager. The sales manager shall be entitled to enter into contracts for sale, submit bills for sales of cement to be made by the companies, receive payment of the same and do all acts and things that may be necessary to manage effectively on behalf of the companies all contracts of sales of cement effected as aforesaid,

Clause (2). All contracts for sale of cement entered into by either of the companies direct or through or in the name of its sales manager aforesaid prior to the commencement of this agreement which have to be carried out during the period of this agreement shall be carried out and executed by and through the said sales manager on the terms of this agreement.

7. It is, therefore, clear that the orders made and notices issued which are the subject-matter of this writ petition and under which the petitioners have been assessed to sales tax for the periods specified in the petition are illegal and without jurisdiction and must be quashed.

8. The only other point that has to be considered is whether the State is entitled to direct the petitioners to remit the amounts collected by the petitioners conditionally from the customers on the basis that they are collected under the Hyderabad Sales Tax Act. It is true that the cases of Kunju Moideen v. State of Travancore-Cochin [1954] 5 S.T.C. 462 and K, J. Mathew v. Sales Tax Officer, Alwaye [1854] 5 S.T.C. 58 held that the amounts collected even conditionally by the assessee are payable to the State as being amounts collected under Section 11 of the Truvantore-Cochin General Sales Tax Act (XI of 1125),

9. We may observe that Section 11 of the Hyderabad General Sales Tax Act is analogous to Section 11 of the Travancore-Cochin General Sales Tax Act and Section 8-B of the Madras General Sales Tax Act, which is in the following terms ;

11. (1) No person who is not registered as a dealer shall collect any amount by way of tax under this Act, nor shall a registered dealer make any such collection before the 1st. day of May, 1950, except in accordance with such conditions and restrictions, if any, as may be prescribed :

Provided that Government may exempt persons who are not registered dealers from the provisions of this sub-section until such date, not being later that the 1st day of June, 1950, as Government may direct.(2) Every person who has collected or collects any amount by way of tax under this Act, on or after the 1st day of May, 1950, shall pay over to the Government within such, time and in such manner as may be prescribed, all amounts so collected by him if they are in excess of the tax, if any, paid by him for the period during which the collections were made ; and, in default of such payment, the amounts may be recovered as if they were arrears of land revenue.

10. On this very provision the Madras High Court in the case of Tata Iron & Steel Co., Ltd. v. The State of Madras [1954] 5 S.T.C. 382 held, as opposed to the Travaucore-Cochin cases cited above, that, what a registered dealer is empowered to collect from purchares under Section 8-B(1) of the Madras General Sales Tax Act of 1939 is only what is lawfully leviable as tax under the Act and, therfore, what is collected without legal authority cannot be claimed by the Government.

11. In that case the Tara iron and Steel Co, with its head office at Jamshedpur and a branch at Madras was a registered dealer under Section 8-A of the Madras General Sales Tax Act arid when final assessment was made against that company for the year 1947-48, it claimed exemption from payment of sales tax on a turnover of Rs. 52,59,112-15-0 on the ground that though goods of that value were Hold by the company to the consume in the taxable territory of Madras, the sales themselves had been effected at Jamshedpur, outside the taxable territory. It was common ground that as the law stood in the assessment area a turnover of these ;;ales did not tall within the purview of the charging section. Though this was so the assessee had collected from the purchasers amounts equivalent to tax that would have been payable had the sale transaction been held liable to tax. It was however ultimately established that the sales themselves were not liable to sales tax under the Act, presumably because of the decision of the Supreme Court in State of Bombay v. United Motors (India) Ltd. A.I.R. 1953 S.C. 252 In the final assessment the assessing authority declined to order a refund of the amount computed in the turnover in question and when the assessment, went up in appeal the Appellate Tribunal stated that though ample opportunities were given to the appellant to show from whom they had collected the sales tax so that the question of granting refund might be considered, the assessee was unable to furnish such information and in those circumstances they held that the amount collected by way of sales tax on the disputed turnover has to be retained by the Government, under Section 8-B(2). Satyanarayana Rao and Rajagopalan, JJ., on these facts held after a detailed examination of the various points involved in the case that if a registered dealer collects tax from a purchaser under a mistaken conception of the liability of the sales to sales tax the amount so collected is not tax lawfully leviable or levied and the registered dealer is under no obligation to pay the amount to Government. The registered dealer however is liable to refund the amount to the purchaser and payment under Section 8-B(2) to the Government would not operate as a statutory discharge of a claim preferred against, the registered dealer by the purchaser. Rajagopalan, J., who delivered the judgment of the Bench was of the view that the word 'tax' in the section only refers to tax lawfully levied or leviable under the Act and the words 'by way of tax under this Act' really mean 'tax under the Act'. Several cases of high authority were examined in which the words 'by way of' used with wager, loan and satisfaction were considered and it was held that whenever these words were used they were used as wager, loan and satisfaction. At page 393 of the aforesaid report the; following observation occurs :

What Section 8-B(2) requires of every person is that he should pay over to the State Government 'all amounts so collected by him', that is, all amounts collected by way of tax. That in the case of a registered dealer should apply only to what he could collect by way of tax within the meating of Section 8-B(1). In the case of the unregistered dealer, though he lacks the authority conferred on the registered dealer by Section 8-B(1) to make any collections, the expression so collected by him' would only apply to the collection referred to in the earlier part of Section 8-B (2), the collection of any amount 'by way of tax under this Act.' In both cases, the interpretation 'by way of tax lawfully leviable under this Act' would fit in with the obligations imposed by Section 813(2) though we realise the anomalous position of an unregistered dealer on whom no rights were conferred but on whom only obligations were imposed.

12. In the Travancore case of K. J. Mathews [1954] 5 S.T.C. 58, Subramania Iyer, J,, did not consider this matter because he assumed that the liability to pay to the State the tax collected by the petitioner was obvious and he said that it was gratifying to note that the learned counsel for the petitioner did not find his way in disputing that liability. This observation would clearly show that the actual point involved was not fully considered and at any rate we do not have the advantage of knowing the reasons which impelled the learned Judge to hold why the liability to pay to the State an unauthorised collection by the petitioner was obvious.

13. In Kunju Moideen Kunju's case [1954] 5 S.T.C. 462 which was a Bench judgment of Subramania Iyer and M. S. Menon, JJ., the cases of Tata Iron & Steel Co. [1954] 5 S.T.C. 382 and Mathews [1954] 5 S.T.C. 58 were referred to but Menon, J., merely contended himself by saying that after studying the judgment carefully and hearing Mr. Mathew on behalf of the petitioner they regret to say that with great respect they do not find their way to adopt the conclusion reached in that decision and have preferred to read the Act to mean that any amount collected by way of tax, that is, any amount that the petitioner obtained from his customers on the ground that it was the sales tax due on the transactions-whether such tax was actually due on the transactions or not-is a collection which has to be handed over to the State under the provisions of the Act. In this view of the matter they therefore saw no reason to depart from the view that one of them had taken in Mathews' case [1954] 5 S.T.C. 58. With great respect we are unable to find any assistance from the Travancore cases and the views expressed by Rajagopalan, J., in the Madras case are in full accord with the view taken by us on a reading of Section 11(2) of the Hyderabad General Sales Tax Act. If Sub-section (2) of Section 11 of the said Act were to be read in the light of the definition of 'tax' in Section 2(1) it would make it obligatory for any person who collects or has collected a tax leviable under the Hyderabad General Sales Tax Act to pay it to the Government. If a tax is not leviable under the Act and it has been collected the Government can have no manner of claim to it.

14. A tax is imposed by authority of law, generally upon a class or classes of persons or on property. It can only be collected in accordance with law. If a person who is authorised to collect a particular tax under the law for and on behalf of the collecting authorities, collects amounts which are not authorised to be collected under the law, he cannot be said to be collecting a tax within the meaning of the Jaw. To hold that the State is entitled to all collections made by the dealer who is not authorised to collect would be to authorise the levy of an illegal impost. For the aforesaid reasons, we are of the view that the Sales Tax Authorities are not entitled to call upon the petitioners to remit to them amounts collected by the petitioners from the customers conditionally on the said amounts being refunded to them if their appeals to the Sales Tax Authorities succeed.

15. As orders and notices asked to be vacated in para 29(a) of the petition, viz., orders of 28th January, 1955, 18th February, 1955, 16th March, 1955, and 26th May, 1955, and also notices of demand dated as aforesaid issued by the first respondent to the petitioner have already been quashed by the appellate authority under the Sales Tax Act, we see no necessity to expressly quash the aforesaid orders and notices ; but if it is necessary, these orders and notices are deemed to have been and are hereby quashed by the Issue of writ of certiorari.

16. It follows from our decision that as the applicant is not liable to pay tax as a dealer others than the tax payable as a sales manager on behalf of the Associated Cement Companies Ltd., the demand by the department for payment of sales tax on (he applicant as a dealer under the circumstances is illegal and respondents 1 and 2 are directed not to demand from the applicant any sales tax on account of sale of cement by the applicant which he makes on behalf of the Associated Cement Companies Ltd., in pursuance of the agreement dated 21st April, 1954, or to demand from the applicant any amounts collected by him from the customers conditionally during the period when the liability to tax has been contested and which are refundable to customers. The application is allowed with costs which we fix at Rs. 100.


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