(1) This appeal under the Letters Patent is filed against the judgment of Ganapatia Pillai J. W. P. 104 of 1959. The facts necessary for disposal of this appeal are succinctly the following.
(2) One Purushotham Raju conducted a business known as the All India Trading Co. and he was the sole proprietor. He was assessed to sales tax, in respect of his turnover for 1948-49 and 1949-50, the dates of the assessment being 20-3-1950 and 30-3-11951. The assessee paid some amount towards the sales tax thus determined, but here remained substantial arrears for 1948-49 (Rs. 3836-4-0) and for 1949-50 (Rs. 1218-1-9). The department took coercive steps including prosecution, to collect the arrears form the aforesaid assessee, but the proceedings were not pursued after the criminal proceedings were dropped on 10-12-111955. Thereafter on 5-10-11956, the assessee transferred his business for-consideration of Rupees 25,000 by a registered instrument to one Sukhraj Peerajee, the petitioner in the writ petition as well as the appellant before us. By a notice dated 17-4-1957, the Deputy Commercial Tax Officer, Park Town, Madras, called upon the petitioner to pay the arrears. The petitioner denied his liability but his contentions were overruled and his appeals to the Commercial tax Officer as well as the Board of Revenue were dismissed.
For the purpose of imposing the liability on the petitioner, the sales-tax department relied upon Rule 21-A of the Rules framed under the Madras General Sales Tax Act. 1939, which is in the following terms:
"When the ownership of the business of a dealer liable to pay the tax under the Act is entirely transferred, any tax payable in respect of such business and remaining unpaid at the time of the transfer shall be recoverable from the transferor or the transferee as if they were the dealers liable to pay such tax, provided that the recovery from the transferee of the arrears of taxes due prior to the date of the transfer shall be only to the extent of the value of the business be obtained by transfer. The transferee shall also be liable to pay tax under the Act on the sales of goods effected and shall within 30 days of the transfer apply for registration or license, as the case may be unless he already holds a certificate of registration or license, as the case may be."
This Rule was issued by the State Government in Government Order No. 477 Revenue dated 2nd March 1954
(2a) Ganapatia Pillai J. who heard the writ petition dismissed it. It was urged by the petitioner before him that the liability to pay sales tax is imposed by the Act on the individual who carries on the business and this liability could not be enforced against another, unless there was privity or devolution of interest. When Rules 21-A sought to shift this liability to the transferee of the dealer who effected the sales, it involved a contravention of the statute and must therefore be struck down as ultra vires to that extend. Ganapatia Pillai J. held:
'What is taxed under the Act is really the transaction of sale and that is the subject matter of the tax. But who is the person that is called upon to pay the tax may vary in individual instances.'
He also observed that it might not be correct to say that in every instance of payment of sales tax, the incidence of the taxation fell only upon the trader who was responsible for the transaction of sale and not upon the successor of that trader. The learned Judge further observed.
"apart from the question whether S. 19(2)(c) of the Act IX of 1939 would cover a case of collection of tax already levied from the purchaser of the business, I would, though with some hesitation, hold that S. 19(1) of the Act, would give power to the State Government to make the rule in question as the collection of the tax already lawfully levied under the Act is one of the purposes of the Act, and the Government have power to make rules to carry out all the purposes of the Act."
For these reasons, he held the rule to be valid. Secondly, the learned Judge came to the conclusion that on a true construction of the instrument of transfer, the transferee under took to pay the liabilities of the transferor, which would include the liability to sales tax accrued due, and that that finding would be sufficient to dismiss the claim of the petitioner, that the levy upon him was illegal. The writ petition was dismissed and the petitioner has appealed before us.
(3) Both the above points which were found against he petitioner by Ganapatia Pillai J. were the subject matter of attack before us by the learned counsel for the appellant. In our opinion, this attack is well-founded, and the appellant is entitled to succeed. We give our reasons below.
(4) We will take up the firs point about the invalidity of rule 21-A. This rule appears to have been framed by the State Government under the rule making power granted to it under S. 19(1) and (2) of the 1939 Act. We must point out initially, that the Act we are considering in this case is the Sales Tax Act 1939, before its amendment in 1959. Reference in this judgment will be made throughout only to the old Act. Section 3(1) of the Act is the charging section. It imposes a liability to pay sales ax on every dealer for each year, and the tax is to be calculated on his total turnover for that year. The word 'dealer' is defined in S. 2(b) of the Act, to mean any person who carries on the business of buying, selling goods. The word 'turnover' is also the subject matter of definition S. 2(I) of he Act, as the aggregate amount for which goods are either bought or sold by a dealer. Therefore the crux of the liability to pay sales tax is that it is imposed on a person defined as dealer, and it is calculated on the quantum of his turnover during the year of assessment. No doubt the word "dealer" would include a seller or a purchaser, both of whom are parties to a given transaction of sale.
(5) A person who has purchased the business as a whole from a dealer can obviously be assessed to sales tax only in respect of his turnover. Under the scheme of the charging provision of the Act, he has nothing to do with the he sales effected by his transferor. The turnover in respect of such sales remains the turnover of the transferor, Act itself provides for different construction. But until the Sales Tax Act was amended in 1959, (vide S. of Act I of 1959) a provision did not find a place in the enactment. Rule 21-A introduced a provision for this purpose in 1954, by a notification of the State Government issued under its rule making power. This rule which has been extracted above, by a fiction, constituted the transferee of the business, a dealer liable to pay the tax. In respect of the turnover of the transferor. In effect, this legal fiction added an amendment to the definition "dealer" in the Act. The State Government relied upon Ss. 19(1) and 19(2)(c) of the Act for giving it power to frame such a rule. Ganapatia Pillai J. stated that though with some hesitation he would hold that S. 19(1) empowered the State Government to make the aforesaid Rule, S. 19(1) of the Act empowers the State Government to make rules to carry out the purposes of the Act. But such authority, cannot be utilised to amplify the definition of a dealer in the Act, so as to constitute by a legal fiction some other person as a dealer, who does not fall within the definition of a dealer in the Act. In making a notification of the above kind, the State Government clearly did not further the purposes of the Act, and acted beyond the scope of its rule making power.
(6) As regards S. 19(2)(c) of he Act, it also does not help the Government Pleader, who relied on it before us. Actually the learned Judge (Ganapatia Pillai J.) did not rely upon S. 19(2)(c) for upholding the rule. The reason is plain. Section 19(2)(c) of the Act gives a list of situations wherein the power under S. 19(1) can be exercised by the State Government for framing rules. Section 19(2)(c) deals with the assessment to tax of businesses which are discontinued or the ownership of which has changed. The word 'assessment' in the scheme of income tax legislation is a term of varying import. It is used sometimes to mean the computation of income, sometimes the determination of he amount of tax payable, and sometimes the whole procedure laid down in the Act for imposing liability on the tax payer. As the privy Council pointed out in Badridas Daga v. C. I. T. (1949) 17 ITR 209 at p. 211: (AIR 1949 PC 159 at p. 1160) the words "assess" and "assessment" refer primarily to the computation of the amount of income. Similarly, in Whitney v. Commr. of Inland Revenue 1926 AC 37 at p. 52 Lord Dunedin said.
"Now there are three stages in the imposition of a tax, there is the declaration of liability that is the part of the statute which determines what persons in respect of what property are liable. Next the is the assessment. Liability does not depend on assessment. That ex hypothesis has already been fixed. But assessment particularises the exact sum which a person liable has to pay.
These principles laid down in the application of the income-tax Act can also be extended to the General Sales Tax Act. Therefore the word "assessee of" used in S. 19(2)(c) cannot be equated to the determination of the person, who has to incur the liability to pay sales tax. It is presumably after realising that Rule 21-A went for beyond the rule making power for the Government, that the Sales Tax Act was amended in 1959, the Legislature thought it fit to embody a suitable provision in the statute itself. Thus the rule is clearly beyond the rule making power of the Government whether under S. 19(1) or S. 19(2)(e) of the Act.
(7) We will briefly refer, before parting with the case, to an argument of the learned Government Pleader, based upon certain observations of the Supreme Court in Banarsi Das v. State of Madhya Pradesh . At page 394 of the report (STC) (at p. (13 of AIR) there is an observation that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be levied., the rates at which it is to be charged in respect of different classes of goods, and the like. The learned Judge (Ganapatia Pillai J.) apparently had this principle in mind when he observed that the person that is called upon to pay the tax under the scheme of the Madras General Sales tax Act may vary in individual instances; and, he referred to the instances where sales tax is made payable by the purchaser and in other case where it is made payable by the trader who sells the articles. But it is to be remembered that under the General Sales Tax Act, the definition of "sale" includes both the sale as well as purchase; the definition of a "dealer" includes both seller and the purchaser; and the definition of "turnover" includes both sale and turnover and purchase turnover. When the legislature left it to the Government to decide as to whether the seller or the purchaser should be taxed in respect of a given transaction of sale, it was not conferring on the State Government any power to alter the definition the statute, but it granted power to the Government to decide whether in the circumstances of the trade in regard to a particular commodity, the incidence of tax would fall in the purchaser, or on the seller in respect of a transaction of sale. Such a delegation of power can easily distinguished from the framing of Rule 21-A, where the rule making authority, in substance, has proceeded to enlarge the definition of "dealer" in the Act itself. Such a rule is obviously beyond the power of the rule making authority, and requires to be struck down by this court.
(8) The next argument based upon the instrument of transfer is easily met. The deed is silent about the sales tax liability. The learned Judge Ganapatia Pillai J. observed that on a true construction of the deed, the transferee undertook to pay not only schedule I liabilities but also other liabilities. By implication, the learned judge held that the other liabilities would include accrued sales tax liabilities, and that this would be a reason for realising the tax from the transferee. But it has to be pointed out, that a deed inter vivos between the transferor and the transferee, does not create a liability between the State on the one hand and the transferee on the other. If such a liability has to be deduced, it will also carry with it, the several obligations regarding the submission of returns, the liability to penalties, and also the liability to submit to coercive steps for its realisation provided in the statute. All these cannot be created by an instrument inter vivos between the parties. Therefore, even if the instrument of transfer, provided for the payment of sales tax by the transferee, that will not enable the taxing authority to rely on it, and making an assessment on the transferee and imposing on him the several penalties and obligations, which the Statute provides for.
(9) For the aforesaid reasons, we are of the opinion that the appellant is entitled to succeed. We allow the appeal and make the rule nisi absolute. The appellant will be entitled to his costs throughout.
(10) Appeal allowed.