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Frontier Boot House Vs. Commissioner of Sales Tax - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case Number Miscellaneous Civil Case No. 1 of 1967
Judge
Reported in[1969]23STC414(MP)
AppellantFrontier Boot House
RespondentCommissioner of Sales Tax
Cases ReferredLove v. Norman Wright
Excerpt:
.....his innocence. conviction of appellant is liable to be set aside. - the assessee had challenged unsuccessfully the addition of the said amount also. thus according to the assessee, all the three conditions mentioned in column 3 were satisfied and the foot-wears thus being tax-free, their sale by the assessee could not attract sales tax. it cannot be controverted that the assessee is not the manufacturer of the foot-wears and that the second condition prescribed in column 3 of entry 5 is not satisfied. their lordships of the supreme court also referred to another case, love v......tax collected separately by a registered dealer from customers to whom he sold goods as part of sale price ?2. the assessee is a dealer in foot-wear. during the assessment proceedings for the period 1st april, 1961, to 31st march, 1962, the assessee claimed deduction in the sum of rs. 56,492.31 on the ground that this sum represented the sale price of foot-wear purchased from local manufacturers and that such sales were exempt from sales tax under entry 5 of the first schedule. this claim was negatived by the departmental authorities, and the sales tax tribunal also agreed with the departmental authorities. the sales tax officer also added rs. 29,773.77 to the taxable turnover returned by the assessee. this amount represented the sales tax separately collected by the assessee from its.....
Judgment:

1. The Sales Tax Tribunal (Board of Revenue, M.P.), at the instance of the assessee, has made this reference under Section 44(1) of the M. P. General Sales Tax Act, 1958. The questions referred to us for our decision are:

(1) Whether or not foot-wear manufactured by hand and sold for a price not exceeding Rs. 15 to a registered dealer by the manufacturer himself or by any member of his family would be free from liability to-sales tax when the goods so purchased were resold by the registered dealer who is himself not a manufacturer or a member of the family of the manufacturer ?

(2) Whether or not it was legal to treat the sales tax collected separately by a registered dealer from customers to whom he sold goods as part of sale price ?

2. The assessee is a dealer in foot-wear. During the assessment proceedings for the period 1st April, 1961, to 31st March, 1962, the assessee claimed deduction in the sum of Rs. 56,492.31 on the ground that this sum represented the sale price of foot-wear purchased from local manufacturers and that such sales were exempt from sales tax under entry 5 of the First Schedule. This claim was negatived by the departmental authorities, and the Sales Tax Tribunal also agreed with the departmental authorities. The Sales Tax Officer also added Rs. 29,773.77 to the taxable turnover returned by the assessee. This amount represented the sales tax separately collected by the assessee from its customers. According to the departmental authorities, the sales tax, though separately recovered, formed part of the sale price and as such was liable to be included in the taxable turnover. The assessee had challenged unsuccessfully the addition of the said amount also. The questions referred to us relate to these two matters.

3. Section 10 of the M.P. General Sales Tax Act provides that no tax shall be payable on the sales or purchases of goods specified in the second column of Schedule I subject to the conditions and exceptions, if any, set out in the corresponding entry in the third column thereof. Entry 5 of the First Schedule is to the following effect :

--------------------------------------------------------------------------------Conditions and exceptions S. No. Description of subject to which exemptiongoods. has been allowed.--------------------------------------------------------------------------------* * * *5. Foot-wears 1. When they are manufactured by handand without the aid of power-driven machines ;2. When they are sold by the manufacturerhimself or by any member of his family;3. When their selling price does notexceed rupees fifteen per pair.--------------------------------------------------------------------------------

The contention of the assessee is that the foot-wears for which deduction was claimed were manufactured by hand and their price also did not exceed Rs. 15 per pair. The assessee also claimed that he purchased the foot-wears from the manufacturers themselves. Thus according to the assessee, all the three conditions mentioned in column 3 were satisfied and the foot-wears thus being tax-free, their sale by the assessee could not attract sales tax. The heading of Section 10 no doubt is 'tax-free goods' but that is an inappropriate heading and cannot control the substantive provisions of Section 10 as shown hereinafter.

4. Sales tax has been imposed under entry 54 of the Second List of the Seventh Schedule to the Constitution. That entry authorises the State Legislature to impose tax on the sale or purchase of goods. The taxing event is thus the sale of goods. The tax is not on goods as such as is the case in excise duties. That is why Section 10 of the M.P. General Sales Tax Act provides that no tax shall be payable on the sales of goods specified in the second column of Schedule I. Under Section 10' read with entry 5, however, all the sales of foot-wears are not exempted from sales tax. Only those sales which satisfy the conditions mentioned in the third column of Schedule I are exempted from sales tax. The assessee is not himself the manufacturer of the foot-wears in question. Though the first and the third conditions mentioned in column 3 of entry 5 are satisfied, the second condition remain unsatisfied, and that is the reason why the departmental authorities (sic)sed to grant the deduction. A similar entry came up for consideration before the Supreme Court in State of Madhya Pradesh v. Abdeali [1962] 13 S.T.C. 931, though in another context. In that case, it was held by their Lordships that in order to secure exemption from sales tax the fulfilment of all the conditions prescribed in the notification was essential. The same is the situation here. The assessee can claim the deduction only if he satisfies all the three conditions. It cannot be controverted that the assessee is not the manufacturer of the foot-wears and that the second condition prescribed in column 3 of entry 5 is not satisfied.

5. Shri W.C. Dhigra, learned counsel for the assessee, however, urged that inasmuch as the first sales made by the manufacturers themselves in favour of the assessee were not liable to tax, the subsequent sale made by the assessee could not attract the tax liability. This contention is not correct. Under the scheme of the Sales Tax Act, every dealer, whose turnover exceeds the specified quantum during the year, is liable to pay sales tax on all the sales subject to the deductions allowed under the Act. In other words, every dealer is made liable to pay tax on his taxable turnover. 'Taxable turnover' is defined as under :.

(r) 'taxable turnover' in relation to any period means that part of a dealer's turnover for such period which remains after deducting therefrom-

(i) the sale price of goods declared tax-free under Section 10 or Section 12 ;

(ii) the sale price of goods on which tax is payable at the first point, and which have been subjected to tax in accordance with the provisions of this Act;

(iii) all such other deductions as may be prescribed ;

(iv) sales to a registered dealer of goods on which tax is payable at the last point and declared by him in the prescribed form as being intended for resale by him in the State of Madhya Pradesh or for sale in the course of inter-State trade or commerce.'

Clause (i) of Section 2 (r) no doubt refers to the 'sale price of goods declared tax-free under Section 10 or Section 12 of the Act'. We have already pointed out that under the Sales Tax Act no goods can be appropriately described as 'tax-free'. What the expression means is that the sale price of those goods, the sales of which are exempted from tax under Section 10 or Section 12, shall not be included in the taxable turnover of an assessee. Now, Clause (i) of Section 2(r) refers to the sale price which is to be deducted. This sale price must, therefore, refer to the price received by the dealer himself. It has no reference to the price paid by the dealer to the manufacturer. No doubt, the manufacturer, from whom the assessee purchased ,the goods, was not liable to pay sales tax ; but that cannot exempt the assess from payment of tax when he in his turn effected the sale. The emotion can be granted to the manufacturer alone, and to no one else,

6. Learned counsel referred to entry 40 in the Second Schedule which is to the following effect:

------------------------------------------------------------------------------S. No. Description of goods. Rate of tax. Points of levy.------------------------------------------------------------------------------* * * *40. All kinds of leather goods 7 per cent. On the pointand foot-wears of all kinds of first sale inexcepting those exempted the State by a dealer liable under entry 5 of Schedule I. to tax.------------------------------------------------------------------------------

This entry exempts and excludes 'foot-wear' exempted under entry 5 of Schedule I. But, if entry 5 is not attracted vis-a-vis a dealer, as in this case, he will certainly be liable to pay the tax. Again, column 4 makes it clear that tax is to be paid on the point of first sale qua a dealer liable to pay tax. The manufacturer, from whom the assessee purchased the foot-wear, was not liable to pay tax. The sale by such manufacturer was, therefore, not a 'first sale' by a dealer liable to pay tax. That stage was reached, when the assessee sold the goods. From this provision also it is clear that the assessee cannot escape the liability of sales tax.

7. Learned counsel for the assessee had relied on the decision of the Supreme Court in Innamuri Gopalam v. Stale of Andhra Pradesh [1963] 14 S.T.C. 742. That case cannot be of any help to the assessee, as it relates to excise goods. We have already pointed out that in the case of excise duty the tax is on the goods as such ; and if the goods are declared tax-free, their character is not changed by the fact that they change hands from stage to stage.

8. For the aforesaid reasons, we are of the view that the assessee not being a manufacturer of the foot-wear the sales effected by him of the foot-wear are not exempt from sales tax, though the assessee had purchased the goods from the manufacturers who were not liable to pay sales tax by virtue of entry 5 of the First Schedule. Our answer to the first question is, therefore, in the negative.

9. The second question for our decision is concluded by the decision of the Nagpur High Court in Jelhalal Virajlal v. State of Madhya Pradesh [1953] 4 S.T.C. 125. In that case, it was held that the amount recovered by a dealer from his purchasers in respect of sales tax must, under the definition of 'sale price' in Section 2(h) of the C.P. and Berar Sales Tax Act, 1947, be regarded as part thereof and it has to be taken into account while arriving at a dealer's taxable turnover ; and that there is no provision in the Act which constitutes a dealer an agent of the Government, nor is there anything in the Act which says that the tax is to be recovered from the purchaser. The provisions of the M.P. General Sales Tax Act, 1958, are similar to the provisions of the C.P. and Berar Sales Tax Act, 1947, and the same reasoning is applicable in this case also.

10. A similar matter came up for consideration before the Supreme Court in George Oakes (Private) Ltd. v. State of Madras [1961] 12 S.T.C. 476. Their Lordships referred to the decision in Paprika Ltd. and Anr. v. Board of Trade [1944] 1 All E.R. 372, wherein it was observed by Lawrence, J. :

Whenever a sale attracts purchase tax, that tax presumably affects the price which the seller who is liable to pay the tax demands but it does not cease to be the price which the buyer has to pay even if the price is expressed as x plus purchase tax.

Their Lordships of the Supreme Court also referred to another case, Love v. Norman Wright (Builders) Ltd. [1944] 1 All E.R. 618, wherein similar observations were made. Their Lordships of the Supreme Court approved the statement of law and stated as under :

We think that these observations are apposite even in the context of the provisions of the Acts we are considering now (Madras General Sales Tax Act, 1954), and there is nothing in those provisions which would indicate that when the dealer collects any amount by way of tax, that cannot be part of the sale price. So far as the purchaser is concerned, he pays for the goods what the seller demands, viz., price even though it may include tax. That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover.' (page 484).

The reasoning of the Nagpur High Court is thus confirmed by the Supreme Court. There is, therefore, no reason to take any other view of the matter. The answer to the second question is that it was legal on the part of the Sales Tax Authorities to add the sales tax collected separately by the dealer to the taxable turnover as the tax amount recovered by the assessee formed part of the sale price. The second question is thus answered in the affirmative.

11. The assessee shall pay the costs of this reference to the Commissioner of Sales Tax, M.P. Hearing fee Rs. 100.


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