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Putineedi Krishna Rao and ors. Vs. the State of Andhra Pradesh - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case NumberTax Revision Cases Nos. 9 to 79 of 1972 and C. M. P. Nos. 4334 to 4404 of 1972
Judge
Reported in[1973]31STC611(AP)
AppellantPutineedi Krishna Rao and ors.
RespondentThe State of Andhra Pradesh
Appellant AdvocateT. Anantha Babu, Adv.
Respondent AdvocateFifth Government Pleader
DispositionPetition dismissed
Excerpt:
- - 3. the petitioners were all assessed to tax on their turnovers in respect of purchases and sales of jaggery of several ryot-principals by the concerned commercial tax officers for assessment years ranging from 1964-65 to 1969-70. the monthly returns submitted by the assessees revealed that they collected certain amounts like rusum, kolagaram and 'chamber cooli collection' for a part of the year while they collected sales tax for the rest of the year. 700. if the same cane was supplied to the factory even at the peak period, he was at best getting for the two tons of cane a price ranging between rs. 1,20,000 though the mode of payment was by transfer of shares and the resolution of the board of directors dated september 9, 1955, clearly indicated that the intention of the.....chennakesav reddy, j.1. these 74 tax revision petitions by the several assessees are directed against a common order passed by the sales tax appellate tribunal, andhra pradesh, hyderabad, on 31st march, 1972, in tribunal appeals nos. 20 to 93 of 1972 before it. in all these petitions, common questions have been raised for decision and they can, therefore, be conveniently considered together and disposed of by a common order.2. the essential facts are: all the petitioners carry on commission agency business in jaggery. the ryots, who prepare jaggery out of the surplus sugarcane, which they are unable to sell to the sugar factories in the area, sell that jaggery through the commission agents. the ryots pay commission to the agents for the services rendered by them. the only mode in which.....
Judgment:

Chennakesav Reddy, J.

1. These 74 tax revision petitions by the several assessees are directed against a common order passed by the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad, on 31st March, 1972, in Tribunal Appeals Nos. 20 to 93 of 1972 before it. In all these petitions, common questions have been raised for decision and they can, therefore, be conveniently considered together and disposed of by a common order.

2. The essential facts are: All the petitioners carry on commission agency business in jaggery. The ryots, who prepare jaggery out of the surplus sugarcane, which they are unable to sell to the sugar factories in the area, sell that jaggery through the commission agents. The ryots pay commission to the agents for the services rendered by them. The only mode in which the agriculturists can realise the income from their surplus sugarcane crop is by converting it into jaggery and selling the same.

3. The petitioners were all assessed to tax on their turnovers in respect of purchases and sales of jaggery of several ryot-principals by the concerned Commercial Tax Officers for assessment years ranging from 1964-65 to 1969-70. The monthly returns submitted by the assessees revealed that they collected certain amounts like rusum, kolagaram and 'chamber cooli collection' for a part of the year while they collected sales tax for the rest of the year. The assessees claimed exemption from the levy of tax, but the same was disallowed by the assessing authorities. The assessees preferred appeals to the Assistant Commissioner of Commercial Taxes, Hyderabad. The Assistant Commissioner by his common order held that the 'chamber cooli collections' formed part of the taxable turnovers of the assessees and that the inclusion of these amounts by the assessing authority in the taxable turnovers of the assessees was unassailable. He rejected the contention advanced on behalf of the assessees that the sales of jaggery effected by the commission agents on behalf of the ryot-principals cannot be regarded as sales by a dealer in jaggery as the ryot-principals themselves were not carrying on business in jaggery, but were only marketing their produce by converting sugarcane into jaggery. As regards the other contentions that the assessees did not collect rusum and kolagaram by way of tax under Section 9 of the Act 9 of 1970, the Assistant Commissioner held that rusum and kolagaram have to be treated as only tax collections taking into consideration the method and the manner in which they were collected. He, however, set aside the assessments on the disputed turnovers and remanded the cases to the concerned assessing authorities for fresh consideration and finalisation of assessments after rechecking the accounts of the assessees and ascertaining whether the assessees collected any tax in the guise of rusum or kolagaram. All the assessees preferred appeals to the Sales Tax Appellate Tribunal, Hyderabad. Before the Tribunal, the following three points were posed for decision:

(1) Whether the sales of jaggery effected by the appellants during the assessment years as commission agents on behalf of their ryot-principals are not liable to be taxed on the ground that their ryot-principals are not dealers and the sales of jaggery of those ryot-principals are not sales in the course of their business;

(2) Whether the appellants are entitled to exemption from tax on their sales of jaggery during the assessment years under Section 9 of the Andhra Pradesh General Sales Tax (Amendment) Act (9 of 1970), on the ground of non-collection of any amounts by way of tax on those sales ; and

(3) Whether the chamber collections made by the appellants do not form part of their taxable turnover.

4. The Tribunal set aside the finding of the Assistant Commissioner, namely, that the ryot-principals sold jaggery in the course of business with a view to get higher dividend and remanded the matter to the assessing authorities for determination of the question after due enquiry giving an opportunity to the assessees to produce such evidence as they desired. On the second question also, the Tribunal held that the finding recorded by the Assistant Commissioner that the amounts collected by the assessees in the name of rusutn or kolagaram in fact represented tax was not based on any evidence gathered in an enquiry. Therefore, the Tribunal set aside the said finding and directed the assessing authorities to make fresh assessments after due enquiry to ascertain that these amounts were collected by way of tax. The Tribunal rejected the third contention of the assessees. The assessees have preferred these revision petitions against the said order of the Tribunal.

5. The learned counsel for the assessees assailed the order of the Tribunal on two grounds, namely, (1) that the principals in question are not dealers and the sales of jaggery by those ryot-principals are not sales in the course of their business; and (2) that the petitioners are entitled to the benefit of Section 9 of the Andhra Pradesh General Sales Tax (Amendment) Act (9 of 1970), as they did not collect any amount by way of tax.

6. Before we proceed to consider these contentions we would pause to observe that sales tax or turnover tax which is one of the modern methods of indirect taxation is now an important element of national taxation. Sales tax was first introduced in this country for raising the revenues of the State in Madras State in 1939 by the Madras General Sales Tax Act, 1939. The Andhra area of the present State of Andhra Pradesh was then a part of the Madras State. When the Andhra State was carved out in 1953, the Madras General Sales Tax Act, 1939, with all its amendments was adopted in toto and made applicable to the newly formed Andhra State. In the Madras Act, commission agents were not expressly included in the definition of 'dealer' in Section 2(b) of the Act. Commission agents of resident dealers were exempted from the levy of tax on their turnover provided they obtained the prescribed licence and strictly conformed to the conditions therein. With the dismemberment of the former Hyderabad State consequent to the reorganisation of States in 1956, the Telangana region of that State was integrated into the Andhra State and the new State of Andhra Pradesh was born on 1st November, 1956. The Hyderabad General Sales Tax Act, 1950, also modelled on the Madras Act was in force in the Telangana region. For obvious reasons it was not desirable to have two different Sales Tax Acts operating in different areas of the same State. Therefore, an integrated Andhra Pradesh General Sales Tax Act, 1957 (hereinafter called the principal Act), was passed and the Madras Act operating in the Andhra area and the Hyderabad General Sales Tax Act operating in the Telangana region were repealed.

7. It is a trite saying that 'of all debts men are least willing to pay the taxes'. The provisions of the Sales Tax Act were questioned by dealers in the High Court and the Supreme Court. As a consequence of the judicial decisions interpreting the provisions of the Act and as a result of the practical experience gained by the assessing authorities enforcing the provisions, the law relating to the liability of commission agents on behalf of the resident principals to pay the tax on the sales of goods effected on behalf of the resident principals and the levy of tax on jaggery underwent a lot of change.

8. Prior to 1st August, 1963, Section 11 of the principal Act, which was analogous to Section 8 of the Madras General Sales Tax Act, 1939 and Section 9 of the Hyderabad General Sales Tax Act, provided for licensing of dealers, who sold or purchased goods on behalf of resident principals and for exempting those dealers if they conducted their transactions in strict conformity with the conditions of the licence. By a proviso under this section exemption was made available in respect of goods when the sale related to the agricultural produce of a grower in the form in which it was produced without being subjected to any physical, chemical or other process. Such exemption, the assessee was entitled to only when the amount for which the goods concerned were sold or purchased was included in the turnover of the principals or would have been so included but for an exemption provided under the Act. The licensing scheme in respect of commission agents was dropped by the Amendment Act 16 of 1963 and a new section was inserted in place of Section 11. As a result of the amending Act 16 of 1963, commission agents of agriculturists-principals were made liable for assessment and collection of tax but their liability was made co-extensive with that of the respective principals. Jaggery, which was being taxed at the first point of sale from 1960 to 31st July, 1963, was subjected to multi-point tax from 1st August, 1963, by virtue of the Amendment Act, 1963. The assessing authorities were, however, making assessments of the turnovers of the commission agents in respect of the purchase and sale of jaggery of several principals without giving exemption to principals on turnovers up to Rs. 10,000. The section that was substituted by the amending Act in the place of sec-tion 11 of the principal Act read as follows :

The tax or penalty due under this Act, in respect of a transaction of sale or purchase effected by any agent on behalf of a principal who is a resident of the State shall be assessed or levied and collected from the agent, in every case where such principal would be otherwise liable to pay such tax or penalty in respect of that transaction. Where the agent has paid the tax or penalty in respect of such transaction, he may, without prejudice to his other rights to recover from his principal such tax or penalty, retain out of the moneys payable to the principal a sum equal to the amount of tax or penalty so paid by him:

Provided that the tax or penalty assessed or levied on, or due from, the agent, may be recovered by the assessing authority from the principal, instead of from the agent.

9. This court in Veera Raju v. Commercial Tax Officer, Tadepalligudem [1967] 20 S.T.C. 501, held that the agent must be deemed to be as many dealers as the number of principals on whose behalf he was acting and that he could not, therefore, be assessed to tax on the transactions effected by him on behalf of different principals if the turnover of transactions effected by him on behalf of each principal was less than Rs. 10,000, the liability of the agent being co-extensive with that of the principal. As a result of the aforesaid decision of this court, the assessments which were being made on the commission agents on the aggregate turnover of the several principals, which exceeded Rs. 10,000, notwithstanding the fact that the turnover of each principal did not exceed Rs. 10,000 were struck down. In order to get over the effect of this decision and to safeguard against any possible evasion by agents/dealers, who purport to act on behalf of the fictitious principals, Section 11 of the Act was amended by Section 4 of the Amendment Act 5 of 1968 and the amendment was given retrospective effect from 1st August, 1963. By virtue of this amendment, the assessing authorities were empowered to levy and collect tax from the commission agents whether or not such principal was liable to tax on account of the turnover of the principal being less than the minimum turnover provided in Section 5 of the Act. A proviso was also added to the section by which the assessing authority may recover from the principal the amount of tax or penalty levied instead of from the agent. Only the principal is liable to pay the sales tax or penalty. The validity of this section was again challenged before this court in Konathala Venkata Ramana and Budha Appa Rao v. State of Andhra Pradesh [1969] 24 S.T.C. 367. This court struck down the section as discriminatory in so far as it makes the agent liable for the turnover of principal as if it is agent's turnover irrespective of whether each of the principals is liable or not. As a result of this decision, it became necessary for the Government to refund large sums of money levied and collected from the commission agents, where principal himself was not liable. So to meet this serious situation, the Legislature enacted the Andhra Pradesh General Sales Tax (Amendment) Act (9 of 1970). In place of Section 11 which was struck down, the following section was substituted by Section 4 of the Amendment Act:

The tax or penalty due under this Act, in respect of a transaction of sale or purchase effected by any agent on behalf of a principal who is a resident of the State shall be assessed or levied and collected from the agent, in every case where such principal would be otherwise liable to pay such tax or penalty in respect of that transaction. Where the agent has paid the tax or penalty in respect of such transaction he may, without prejudice to his other rights to recover from his principal such tax or penalty, retain out of the moneys payable to the principal, a sum equal to the amount of tax or penalty so paid by him :

Provided that the tax or penalty assessed or levied on, or due from, the agent, may be recovered by the assessing authority from the principal, instead of from the agent.

Explanation.-For the purposes of this section, the expression 'agent' shall have the meaning assigned to the expression 'dealer' in Sub-clause (iv) of Clause (e) of Sub-section (1) of Section 2.

10. A scrutiny of the scheme of the section will reveal that the agent discharges the liability to tax on the sale or purchase effected by him for or on behalf of the principal. Therefore, if the principal himself is not liable to pay the tax, the agent is not liable. A further proviso to Sub-section (1) of Section 5 was added by Section 2 of the aforesaid Amendment Act, which reads as follows :

Provided further that a dealer in jaggery shall pay a tax at the rate of 2 paise on every rupee up to the 31st March, 1966 and at the rate of 3 paise on every rupee on and from the 1st April, 1966, of his turnover irrespective of the quantum of turnover.

11. By Section 5 of this Amendment Act, the First Schedule to the principal Act was also amended. After items 6 to 76, four new items are added and item 77 is jaggery, which is made liable at the point of first sale in the State at 5 paise in the rupee. Section 8 of the Amendment Act validates assessment orders already made under the principal Act prior to the amendment. Section 9 of the Amendment Act relates to exemption from liability to pay tax in certain cases. It is necessary to read Section 9 :

(1) Where any sale of jaggery has been effected during the period between the 1st August, 1963 and the commencement of Section 5 of this Act in so far as it relates to item 77 and the dealer effecting such sale has not collected any amount by way of tax under the principal Act on the ground that no such tax could have been levied or collected in respect of such sale, or any portion of the turnover relating to such sale and where no such tax could also have been levied or collected if the amendments made in the principal Act by this Act had not been made, then, notwithstanding anything contained in Section 8 of the said amendments, the dealer shall not be liable to pay any tax under the principal Act, as amended by this Act, in respect of such sale or such part of the turnover relating to such sale.

(2) For the purposes of Sub-section (1), the burden of proving that no amount by way of tax was collected under the principal Act in respect of any sale referred to in Sub-section (1) or in respect of any portion of the turnover relating to such sale, shall be on the dealer effecting such sale.

12. The validity of the provisions of this Amendment Act 9 of 1970 was again challenged before this court in another batch of writ petitions, viz., Jonnala Narasimharao v. State of Andhra Pradesh [1971] 28 S.T.C. 262 at p. 264. This court upheld the validity of all the provisions of the aforesaid amending Act except the validity of Section 9 thereof. Aggrieved by this judgment, the assessees preferred appeals to the Supreme Court. The Supreme Court set aside the judgment of the High Court in so far as it struck down Section 9 of the Amendment Act as unconstitutional and upheld the validity of that section. So the net result is that the validity of the Amendment Act 9 of 1970 has been completely upheld.

13. What finally emerges after the amendment of 1970 is that the liability of the agent is co-extensive with that of the principal. The agent would not be liable to pay the tax unless the transactions, if effected by his principal himself, are exigible to tax. Before the amendment of 1970, the agent was liable to the levy of tax even in cases where the principal was not liable. That anomaly has now been done away with by the Amendment Act of 1970.

14. With the above background of the law, we shall now examine the soundness of the first contention of Sri Anantha Babu. The Assistant Commissioner of Commercial Taxes, while considering the question of their liability itself to pay tax, observed as follows :

All these assessments relate to the years 1964-65 onwards. The price of jaggery was at the highest in the periods 1964-65, 1965-66, 1966-67 and 1967-68. A ten Kg. lump was selling anywhere between Rs. 15 and Rs. 30, which means a putti was selling between Rs. 350 and Rs. 700, whereas the price of cane during those relevant periods was ranging between Rs. 70 and Rs. 100 per ton. It was always profitable for the ryots to manufacture jaggery and get higher dividends rather than supplying cane to the factories, especially in the years 1964-65, 1965-66, 1966-67 and 1967-68. Due to enormous increase in the cane area, there was, no doubt, a fall in the price of jaggery in the years 1967-68, 1969-70 and 1970-71, but there was corresponding decrease in the cane price paid by the factories to the farmers, whereas the price of cane per ton was ranging anywhere between Rs. 100 and Rs. 140 and in the years 1964-65, 1965-66 onwards, the price has dropped down to Rs. 73.85 from 1968-69 onwards. Similarly, there was a drop in the price of jaggery also, but not to the same extent or proportion. In fact, sugarcane was supplied to khandasari factories in the peak periods even at Rs. 200 per ton, but at that time jaggery was being sold at Rs. 700 per putti. There was a clear motive for converting cane into jaggery and instances are not rare where cane-growers did not fulfil the demands of factories by supplying cane on permits. By crushing two tons of sugarcane, a ryot makes a putti of jaggery and in the peak period it fetched between Rs. 350 and Rs. 700. If the same cane was supplied to the factory even at the peak period, he was at best getting for the two tons of cane a price ranging between Rs. 200 and Rs. 300. So it is evident from these facts that the ryots with a view to make profit and with a view to conduct business have converted cane into jaggery. It cannot be said that due to the difficulty of supplying cane to the factories alone that the ryot-principals converted sugarcane into jaggery.

15. The learned counsel for the petitioners attacked the aforesaid finding before the Tribunal on the ground that they are not based on any enquiry conducted by the assessing authorities and that they are purely based on conjectures and surmises of the Assistant Commissioner himself. The Tribunal, after considering the relevant authorities cited before it, concluded as follows :

Whether the sugarcane as such is marketable, whether the conversion into jaggery of the sugarcane of the appellants, agriculturist-principals, other than the sugarcane, if any, supplied by them to the sugar factories, is a manufacturing process or merely a process essential for the marketing of the sugarcane and whether those agriculturist-principals intended to carry on the business of selling or supplying jaggery, are all questions of fact on which we are not in a position to give any finding in the absence of evidence gathered by the authorities below. We cannot therefore help remanding the matter to the assessing authorities for holding an enquiry and record a finding on this issue on the basis of evidence recorded in such an enquiry. We accordingly set aside the finding of the Assistant Commissioner, namely, that the ryot-principals sold jaggery in the course of business, with a view to get higher dividends and if not by force or circumstances of non-supply of cane to the factory and remanded the matter to the assessing authorities for determination of this question after due enquiry, giving an opportunity to the appellants to produce such evidence as is necessary in the light of the above observations.

16. The learned counsel, however, reiterated the same contention raised and rejected by the Assistant Commissioner and the Appellate Tribunal. Therefore, it is necessary to read the relevant provisions. The definition of 'dealer' underwent number of changes since its inception in the Madras General Sales Tax Act, 1939, which was in vogue in the Andhra area until it was replaced by the Andhra Pradesh General Sales Tax Act, 1957. In the Madras Act, the term 'dealer' was defined in simple and plain language in Section 2(b) as 'any person who carries on the business of buying or selling of goods'. Two explanations were added under the section. By explanation I, a co-operative society, a club, or any association which sold goods to its members was included under the expression 'dealer'. By explanation II, an agent or a person resident outside the State who carried on the business of buying and selling goods in the State was also included in the expression 'dealer'. By an amending Act 25 of 1947, explanation II was deleted and a separate section, Section 14-A was inserted. The Madras General Sales Tax Act, 1939, was adopted by the Andhra State when it was formed in 1953. The Andhra State enlarged the scope of the definition by the Andhra Act 16 of 1956. 'Dealer' was defined under Section 2(b) as follows :

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 other valuable consideration and includes-

(i) a State Government or a Hindu joint family which carries on such business,

(ii) any society including a co-operative society, club, firm or association which buys goods from, or sells, supplies or distributes goods to, its members and

(iii) any commission agent, a broker, a del credere agent, an auctioneer, or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of disclosed or undisclosed principal.

17. In the Hyderabad General Sales Tax Act, 1950, which was primarily based on the Madras model and which was in force in the Telangana area, the definition of dealer was incorporated in Section 2(e) and was devoid of any explanations.

18. As it was not desirable to have two different Sales Tax Acts, the Madras General Sales Tax Act, which was in operation in the Andhra area and the Hyderabad General Sales Tax Act, which was in operation in the Telangana area of the State of Andhra Pradesh, were both repealed and replaced with effect from 15th June, 1957. Under the Andhra Pradesh General Sales Tax Act, 1957, the definition of 'dealer' was further modified and an explanation was incorporated to include in the definition 'a person who acts as an agent of a non-resident dealer'. Subsequently, by Act 16 of 1963, a second explanation which is material for our purposes was added and it reads as follows :

Explanation II.-Where a grower of agricultural or horticultural produce sells such produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, in a form different from the one in which it was produced after subjecting it to any physical, chemical or any process other than mere cleaning, grading or sorting, he shall be deemed to be a dealer for the purposes of this Act.

19. Previously there was no definition of the word 'business' in the Act. By an Amendment Act 7 of 1966, which came into effect from 6th April, 1966, Clause (bbb) was inserted in Sub-section (1) of Section 2 of the principal Act defining 'business' as follows :

business' includes,-

(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; and

(ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.

20. It is manifestly clear from a reading of this definition of 'business' that the business carried on or undertaken need not be with a motive of profit or gain and whether a dealer makes any profit or not, the dealer is liable to pay tax on the sales effected by him. Only the business carried on by him should be in the nature of any trade, commerce or manufacture. It is contended by the learned counsel that the principals were not carrying on any business, trade or commerce and were selling only their agricultural produce by converting it into jaggery and that, therefore, they were not liable for the levy of any tax on the sales of agricultural produce. As already noticed, explanation II to the definition of 'dealer' exempts, no doubt, the grower of agricultural or horticultural produce when he sells such produce in the same form, but when he sells it in a different form in which it was produced after subjecting it to any physical, chemical or any process other than mere cleaning, grading or sorting, the grower shall be deemed to be a dealer for the purposes of the Act. It should be remembered that the explanation was inserted by Section 2(1) of the Amendment Act 16 of 1963 and took effect from 1st August, 1963, i. e., prior to the assessment orders in question. It is contended by the learned counsel that the conversion of sugarcane into jaggery is not one different from the form in which it was produced. Whether the ryots were unable to sell sugarcane as such to the sugar factories and whether they cannot realise income except by converting sugarcane into jaggery and whether in the circumstances it is only a mode of rendering produce marketable are all pure questions of fact, which can only be decided by the assessing authorities after the necessary enquiry. Therefore, we do not find any merit in this contention.

21. We shall now pass on to consider the next contention of the learned counsel, namely, that the amounts collected by the assessees as rusum and kolagaram are not by way of tax and that the assessees are entitled to protection under Section 9 of the Amendment Act 9 of 1970. The Assistant Commissioner after a perusal of the assessment files, ledgers, etc., held that some of the assessees collected only tax for the years 1964-65, 1965-66 and later on resorted to collection of rusum or kolagaram. He observed that the rate of collection of rusum had been changing with the rates of tax and varying from year to year. In the ledger of certain assessees it was found that the rusum was accounted for as tax. It is submitted by the learned counsel that Section 9 of the Amendment Act is a beneficial provision intended to remedy the hardship that will be caused to dealers who have not collected tax. Therefore, by Section 9 of the Amendment Act, the dealers, who have not collected the amount on sale of jaggery by way of tax on the ground that no such tax could have been levied or collected in respect of such sales of jaggery, are exempted from payment of any tax in respect of such sale or such part of the turnover. But, however, under Sub-section (2) the burden of proving that no amount by way of tax was collected in respect of any sale shall be on the dealer effecting such sale. Whether the dealer collected the amount by way of tax or not does not depend upon the name given by the dealer to a transaction. He cannot evade tax by merely giving a name. A name given by the parties, rusum or kolagaram, does not necessarily decide the nature of the transaction. The question always is what is the real character of the payment, not what the parties call it. So to determine the real character of the payment, there should necessarily be enquiries by the assessing authority. The Tribunal held that the assessing authority had no occasion to hold any enquiry for determining whether the transactions in question involved a collection of tax in the name of rusum or kolagaram. No opportunity was also given to the assessees to adduce evidence to show that they did not intend to pass on the tax to their buyers and that what was collected by way of rusum or kolagaram was only intended as remuneration for the agents for the services rendered by them. It is also necessary to give an opportunity to the assessees to show that the amounts collected were spent or utilised for the purposes for which they were collected. They must also be given a chance to adduce evidence to prove mercantile custom, if any, of the jaggery dealers for collecting from the customers amounts in the name of rusum or kolagaram independent of tax. Whether the amount was collected by way of tax or not has to be determined upon the actual facts and circumstances of each case and the nature of the transaction. What then is the meaning of the expression 'by way of tax' The expression 'by way of' has been explained thus in Corpus Juris Secundum, Volume 12, at pages 870-871 :

'By way of': It has been said in a certain connection the phrase is idiomatic and difficult of rendition into exact phraseology, but that it may be taken to mean 'as for the purpose of, 'in character of, 'as being', which are characterised as synonymous phrases.

22. The learned counsel relied upon the decision in Potts' Executors v. Commissioners of Inland Revenue (1952) 32 Tax Cas. 211, where Lord Simonds had occasion to consider the meaning of 'by way of loan'. In the circumstances of that case, it was held that the amount in question was not. paid by the company by way of loan to the settlor. The learned counsel next relied upon the decision in George Oakes (Private) Ltd. v. State of Madras [1961] 12 S.T.C. 476 (S.C.). In that case, the Supreme Court observed that 'the expression 'collected by way of tax' is merely descriptive of the 'amounts' so collected'. That being so, it is submitted that an amount described as rusum or kolagaram cannot be said to have been collected by a dealer by way of tax while collecting it. In Spencer & Co., Ltd, v. The State of Mysore [1970] 26 S.T.C. 283, a Division Bench of the Mysore High Court interpreting the expression 'amounts collected by way of tax' observed as follows, at page 289 :

The clause 'all amounts collected by way of tax under the Act by a dealer' in Rule 6(4)(h) and Section 18, in our opinion, means all amounts collected in the character of or as being tax, under the Act. The evidence concerning the transaction must show that the buyer had agreed to pay sales tax in addition to the price and the seller's account books should disclose such amounts separately. Where there is absence of such evidence, it cannot be said that amounts were collected by the dealer in the character of or as being tax. Therefore, in our judgment, a dealer can be said to have collected the amounts by way of tax under the Act, where from the facts and circumstances, it can be inferred that the seller intended to pass on the tax and the buyer had agreed to pay the sales tax in addition to the price and that in the accounts of the dealer he has shown such amounts separately. If the cash memo. or the invoice separately shows the sales tax passed on to the buyer, no difficulty arises. But even in the absence of evidence furnished in the cash memos. or bills, it may be possible for a dealer to establish that he has collected the amounts by way of tax under the Act.

23. The Madras High Court had occasion to consider in M.R. Narasimhalu & Co. v. The State of Madras [1963] 14 S.T.C. 947, the question whether a dealer collected tax in a disguised form and observed as follows:

The learned Government Pleader has drawn our attention to a decision rendered by one of us in Valliappa Chettiar v. State of Madras A.I.R. 1962 Mad. 372. That was a case where the assessee was denied the benefit of a concession announced by the State in respect of the additional levy to be available on condition that the dealer had not collected such tax. The assessing authorities took the view that the assessee had collected the additional tax in a disguised form. In that case it was held that whether the assessee had or had not collected the additional tax from his purchasers was a fact which was peculiarly within the knowledge of the assessee and before the assessee could claim the concession, the onus was upon him to establish that he did not collect the additional levy. It was pointed out that though the assessee had not ex facie shown any collection in his books of account, it was open to the authorities to probe into the matter and find out whether in fact the assessee had collected the tax. This decision has been relied upon on behalf of the State in support of its contention that the price structure of the assessee could be examined in that regard and that it is within the jurisdiction of the assessing authorities to discover if any amount had been collected by way of additional tax.

24. Yet in another case reported as Commissioner of Income-tax, Andhra Pradesh v. Motors and General Stores (P.) Ltd. [1967] 66 I.T.R. 692 (S.C.), at page 699, the Supreme Court observed as follows :

We pass on to consider the argument of Mr. Narasaraju that in revenue matters it was the substance of the transaction which must be looked at and not the form in which the parties have chosen to clothe the transaction. It was contended that, in the present case, there was in substance a sale of Sree Rama Talkies by the assessee-company for a money consideration of Rs. 1,20,000 though the mode of payment was by transfer of shares and the resolution of the board of directors dated September 9, 1955, clearly indicated that the intention of the assessee-company was to sell Sree Rama Talkies along with its equipment concerned for a consideration of Rs. 1,20,000. In the present case, however, there is no suggestion on behalf of the appellant of bad faith on the part of the assessee-company nor is it alleged that the particular form of the transaction was adopted as a cloak to conceal a different transaction. It is not disputed that the document in question was intended to be acted upon and there is no suggestion of mala fides or that the document was never intended to have any legal effect. In the absence of any suggestion of bad faith or fraud the true principle is that the taxing statute has to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document the liability to tax depends upon the meaning and content of the language used in accordance with the ordinary rules of construction. In Bank of Chettinad Ltd. v. Commissioner of Income-tax [1940] 8 I.T.R. 522 (P.C.), it was pointed out by the Judicial Committee that the doctrine that in revenue cases the 'substance of the matter' may be regarded as distinguished from the strict legal position, is erroneous. If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.

25. The Supreme Court cited with approval the observations of Lord Russell in Duke of Westminster's case (1935) 19 Tax Cas. 490 to the following effect:

If all that is meant by the doctrine is that having once ascertained the legal rights of the parties you may disregard mere nomenclature and decide the question of taxability or non-taxability in accordance with the legal rights, well and good. That is what this House did in the case of Secretary of State in Council of India v. Scoble [1903] A.C. 299; that and no more.

26. On an examination of the aforesaid authorities, it is clear that a mere name given by the party to a transaction does not necessarily decide the nature of the transaction. We are therefore convinced that the assessing authorities have to probe into the nature of the transactions and find out from the registers, cash memos. or the invoices, etc., whether the seller passed on the tax to the buyer and the buyer paid the amount as part of the price amount. The real character of the payment can only be determined after a full enquiry. In such an enquiry the assessee may be able to adduce evidence to prove any existing mercantile custom among the commission agents for collecting from the customers amounts in the name of rusum or kolagaram irrespective of any tax. They may also show that the amounts so collected were utilised or spent for the purpose for which they were collected. Under Sub-section (2) of Section 9 of the Amendment Act, 1970, the burden of proving that no amount was collected by way of tax under the principal Act in respect of any sale of jaggery or in respect of any portion of the turnover relating to such sale effected by the assessee is cast on the assessee. In the circumstances, the Tribunal was justified in setting aside the assessments and remitting the cases to the assessing authorities for fresh disposal according to law after giving an opportunity to the assessees to adduce such evidence as they consider fit in support of their claim for exemption under Section 9 of the Amendment Act of 1970. We are, therefore, satisfied that there are no grounds for interference in these revision petitions.

27. In the result, the revision petitions are dismissed with costs. Advocate's fee Rs. 50 in each.


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