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Raipur Vikas Khand Sahkari Vipanan Sanstha Samiti Vs. Commissioner of Sales Tax - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case Number Miscellaneous Civil Case No. 31 of 1972
Judge
Reported in[1975]36STC433(MP)
AppellantRaipur Vikas Khand Sahkari Vipanan Sanstha Samiti
RespondentCommissioner of Sales Tax
Appellant Advocate K.M. Agarwal, Adv.
Respondent Advocate K.K. Adhikari, Government Adv.
Cases ReferredBombay v. Scindia Steam Navigation Co. Ltd.
Excerpt:
- - general sales tax act, 1958, and, as such, levy of purchase tax under section 7(1) read with section 8(1) of the said act would be perfectly legal. (1) when a question is raised before the appellate tribunal and is dealt with by it, it is clearly one arising out of its order. the definition clearly implies that there should be a transfer of property in goods for cash or deferred payment and mortgage, hypothecation, charge or pledge will not mean a sale. may be from outside sources as well......purchase tax under section 7 of the act could be levied on the paddy delivered by the members of service societies to the assessee for which payment was made by the assessee to the service societies who adjusted the payment against the loan advanced by the service societies to the respective members ?(3) whether, in the facts and circumstances of the case, the assessee had 'sufficient cause' within the meaning of section 17(3) not to have filed the three quarterly returns ?(4) whether, without prejudice to question no. (3), if a8 a result of the answers to this reference the tax liability on the assessee is reduced, the penalty under section 17(3) should be correspondingly reduced ?2. the present reference arises on the following facts : the petitioner is a marketing society registered.....
Judgment:

P.K. Tare, C.J.

1. The Board of Revenue, Madhya Pradesh, Gwalior, has under Section 44(1) of the M. P. General Sales Tax Act, 1958, referred the following questions for our opinion :

(1) Whether conversion of paddy into rice is a manufacturing process within the meaning of Section 2(j) of the M. P. General Sales Tax Act, 1958 ?

(2) Whether, in the facts and circumstances of the case, purchase tax under Section 7 of the Act could be levied on the paddy delivered by the members of service societies to the assessee for which payment was made by the assessee to the service societies who adjusted the payment against the loan advanced by the service societies to the respective members ?

(3) Whether, in the facts and circumstances of the case, the assessee had 'sufficient cause' within the meaning of Section 17(3) not to have filed the three quarterly returns ?

(4) Whether, without prejudice to question No. (3), if a8 a result of the answers to this reference the tax liability on the assessee is reduced, the penalty under Section 17(3) should be correspondingly reduced ?

2. The present reference arises on the following facts : The petitioner is a marketing society registered under the M. P. Co-operative Societies Act, 1961. It is running a rice mill and it is registered as a dealer. It was being assessed to sales tax for the period from 1st July, 1964, to 30th June, 1965. It was assessed to purchase tax under Section 7(1) read with Section 8(1) of the M. P. General Sales Tax Act, 1958. The tax was imposed on a total purchase of Rs. 35,81,029.06 and, in addition, penalty of Rs. 8,000 was imposed under Section 17(3) of the Act for failing to submit three quarterly returns.

3. There are primary service societies, which are registered under the M. P. Co-operative Societies Act, 1961, of which the agriculturists are members. The primary service societies advance loans to their members and in return, the members instead of repaying the loan in cash, supply paddy to the petitioner-marketing society. The primary service societies and some others are also members of the petitioner-marketing society. On receipt of paddy from the agriculturists, the petitioner-marketing society, after processing in the rice mill sells the paddy in market. The sale price is adjusted towards the loan due from the agriculturists to the primary service society after deduction of expenses and costs and the balance, if any, is again credited to the account of the individual agriculturist by the primary service society. This is the method of working.

4. The Assistant Commissioner of Sales Tax, while assessing the petitioner-marketing society for the relevant' year, held that the supply of rice by the agriculturists to the petitioner-marketing society was a purchase by the petitioner and as Section 6 of the M. P. General Sales Tax Act, 1958, was not applicable, the petitioner was liable for purchase tax under Section 7(1) of the said Act. The petitioner was assessed to tax of Rs. 53,294.98 and also a penalty of Rs. 8,000 was imposed for late returns in respect of the three quarters. On an appeal to the Deputy Commissioner of Sales Tax, the original order of the Assistant Commissioner of Sales Tax was upheld. On a second appeal to the Board of Revenue, the learned President affirmed the order of the Deputy Commissioner. However, on an application made by the assessee, the Board of Revenue has made a reference to this court seeking our opinion on the four questions mentioned above. We propose to consider the four questions as follows:

Question No. (1).-This question stands answered by the opinion of a Division Bench of this Court in Laxmi Chand Badri Narain v. Commissioner of Sales Tax 1971 M.P.L.J. 21, with which we are in respectful agreement. The Division Bench laid down that collection of goods and making them marketable, such as turning paddy into rice after dehusking it and grains into dal would amount to manufacture within the meaning of Section 2(j) of the M. P. General Sales Tax Act, 1958, and, as such, levy of purchase tax under Section 7(1) read with Section 8(1) of the said Act would be perfectly legal. Therefore, we answer the said question in the affirmative.

Question No. (3).-This question, in our opinion, would be one of fact. In a reference under Section 44(1) or Section 44(2) of the M. P. General Sales Tax Act, 1958, questions of law only can be referred to the High Court for its opinion. In the present case, the petitioner-assessee offered an explanation before the taxing authorities, which was rejected on the ground that no sufficient cause was made out. It was open to the taxing authority to come to its own conclusions upon the material on record and as no illegality or irregularity is demonstrated to have been committed by the taxing authority, this question does not involve any question of law, but it is purely a finding of fact. We, therefore, refuse to answer the question on the ground that this is a pure question of fact and, consequently, such a question could not have been referred to us for our opinion.

Question No. (4).-This question depends on the answer to question No. (3). As such, there is no occasion for reduction of the tax liability of the petitioner. For this reason there would be no question of the penalty under Section 17(3) of the Act being correspondingly reduced. Therefore, this question does not at all arise for consideration in view of our answer to question No. (3).

5. The only other question to be considered in the present reference would be question No. (2), regarding the liability of the petitioner for purchase tax. The learned counsel for the petitioner invited attention to the bye-laws of the petitioner-society to urge that the transaction would neither amount to sale nor purchase and, as such, would not be taxable under Section 7(1) read with Section 8(1) of the M. P. General Sales Tax Act, 1958. When it was pointed out to the learned counsel for the petitioner that this line of reasoning was not advanced before the Board of Revenue, the learned counsel for the petitioner invited attention to the pronouncement of their Lordships of the Supreme Court in Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd. [1961] 42 I.T.R. 589 (S.C.) In that case, their Lordships of the Supreme Court have laid down the following four propositions:

(1) When a question is raised before the Appellate Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.

Therefore, their Lordships laid down that it would be only a question that has been raised before or decided by the Tribunal that can be said to arise out of the order of the Tribunal. The learned President of the Board of Revenue has discussed this question in paragraph 4 of his order, dated 24th October, 1969 (annexure B), wherein he has opined that the transaction would amount to a purchase assessable under Section 7(1) of the M. P. General Sales Tax Act, 1958. There is no doubt that the question was not raised in the form it is submitted before us, nor does it appear to have been decided by the Tribunal. But, that aspect does arise for consideration before us in view of question No. (2) framed by the Tribunal while making this reference. In this connection, we might observe that it is the nature of the transaction that has to be determined by us, which alone will determine the liability of the petitioner-marketing society. Therefore, it may be that another line of argument might have been adopted before the Tribunal as regards the nature of the transaction, but it is open to the petitioner to adopt another line of reasoning in respect of the same question. We are, therefore, of the opinion that the question was raised by the petitioner before the Tribunal by adopting another line of reasoning, but not advancing the line of reasoning that is now sought to be advanced before us. It is always open to this court to consider any other line of reasoning, which may not have been advanced before the Tribunal. Therefore, without even invoking the principle laid down by their Lordships of the Supreme Court in Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd. [1961] 42 I.T.R. 589 (S.C.), we are of the opinion that the petitioner can certainly be permitted to raise the question, which was raised before the Tribunal and which was specifically decided by the Tribunal. As such, the question does arise out of the order passed by the Tribunal and the mere fact that another line of reasoning might be advanced would not detract from that position. Therefore, we permitted the learned counsel for the petitioner to exhaustively discuss the nature of the transaction from any angle he likes.

6. 'Sale' has been defined by Section 2(n) of the M. P. General Sales Tax Act, 1958, as follows :

'Sale' with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes a transfer of property in goods involved in the supply or distribution of goods by a society or club or any association to its members, but does not include a mortgage, hypothecation, charge or pledge, and the word 'purchase' shall be construed accordingly.

The definition clearly implies that there should be a transfer of property in goods for cash or deferred payment and mortgage, hypothecation, charge or pledge will not mean a sale. The definition also provides that the word 'purchase' shall be construed accordingly. Therefore, what is necessary for a sale is transfer of property in goods for cash or deferred payment or for other valuable consideration. The definition is inclusive of a transfer of property in goods involved in the supply or distribution of goods by a society or club or any association to its members. We have, therefore, to examine the nature of the transaction in the light of the definition of 'sale' provided by Section 2(n) of the Act.

7. It is not disputed that Section 6 of the Act is not attracted in the present case. For that reason only Section 7 is invoked by the taxing authorities. Section 7(1) of the Act is as follows :

Section 7. (1) Every dealer who in the course of his business purchases any taxable goods from a registered dealer, in circumstances in which no tax under Section 6 is payable on the sale price of such goods or from any other person and either consumes such goods in the manufacture of other goods for sale or otherwise or disposes of such goods in any manner other than by way of sale in the State or despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under Section 6.

It is to be noted that the purchase should not only be from a registered dealer, but may be from any other person and the purchaser should consume such goods in the manufacture of other goods for sale or otherwise or disposes of such goods in any manner other than by way of sale in the State or 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, then only, in that event, the exemption would be granted.

8. We may further observe that there should, in fact, be a transfer of goods for cash or for deferred payment. Therefore, it is in the light of the said provisions that we have to ascertain the nature of the transactions entered between the petitioner-society and the agriculturists, who are members of the primary service societies. The method of working has already been detailed by us in paragraph 3 of this order. The method is as follows: The primary service societies advance loans to their members, who are all agriculturists. As such, the agriculturists are indebted to the primary service society. What is provided further is the method of repayment of the loans. The agriculturists are not required to repay the loans in cash, but the agreement is that they should supply paddy to the petitioner-marketing society. It is to be noted that the primary service societies alone are not members of the petitioner-marketing society, but there are some others, who are also members of the petitioner-society. The petitioner-society thus collects paddy not only from the agriculturists, but also from other members or. may be from outside sources as well. The petitioner-society processes the rice and then it sells such rice in the market. As regards the adjustment, the amount is credited to the account of the primary service-society, whose member (agriculturist) has supplied the paddy. The petitioner-society deducts the costs and expenses and the balance, if any, is transferred to the primary service society, which in its turn credits the amount to the account of the individual agriculturist supplying the paddy. In this connection, it is also to be noted that the primary service societies are not dealers. As such, the petitioner-marketing society purchases the paddy from individual agriculturists through the primary service societies and after performing some process of manufacture, sells the marketable produce in the market. In this method of working, we may observe that all the elements of sale as per Section 2(n) of the M. P. General Sales Tax Act, 1958, are present and such a purchase by the petitioner-society from individual agriculturists through the primary service societies would fulfil all the conditions mentioned in Section 7(1) of the Act. The transaction is not in the nature of any mortgage, hypothecation, charge or pledge. But the purchase by the petitioner-society is outright and the title is transferred to the petitioner-society no sooner an agriculturist supplies the paddy to the petitioner. It is further to be noted that the agriculturists already receive the sale price in advance by way of loan given by the primary service society. Therefore, all the elements of a sale are present in such a transaction and, therefore, we are of the opinion that the requirements of Section 7(1) of the M. P. General Sales Tax Act, 1958, are squarely met.

9. To conclude, we are of the opinion that the petitioner-society's liability for purchase tax was rightly determined by the taxing authorities as there was transfer of goods for cash (paid in advance) and the transaction was neither a mortgage, nor hypothecation, nor a pledge.

10. As a result of the discussion aforesaid, we answer the questions as follows:

(1) The conversion of paddy into rice is a manufacturing process within the meaning of Section 2(j) of the M. P. General Sales Tax Act, 1958.

(2) That, on the facts and in the circumstances of the case, purchase tax under Section 7 of the Act was rightly levied on the paddy delivered by the members of service societies to the assessee for which payment was made by the assessee to the service societies, who adjusted the payment against the loan advanced by the service societies to the respective members.

(3) That, on the facts and in the circumstances of the case, the question of sufficient cause was a pure question of fact and, for that reason, we decline to answer the same on the ground that a question of law alone could have been referred to us for our opinion. Consequently, there was no sufficient cause within the meaning of Section 17(3) of the Act for late filing of three quarterly returns.

(4) In view of our answer to question No. (3), this question does not arise for consideration at all.

10. Let the case be remitted to the Board of Revenue for acting in accordance with the opinion given by us. The petitioner shall bear the costs of the reference, including the respondent's costs and counsel's fee shall be Rs. 100.


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