1. Though the petitioners in these three petitions are different, a common question arises. These petitions are accordingly disposed of together.
2. The petitioners in all these cases are licensed dealers in hides and skins. The petitioner in T. C. No. 7 of 1959 was assessed on the turnover which included the sale value of hides and skins for the assessment year 1955-56. The dispute in this regard was in respect of a turnover of Rs. 2,76,914, which was the estimated sale value of the tanned product. It is common ground that the raw hides and skins from out of which these tanned hides and skins were prepared had been purchased by the petitioner, partly outside the Madras State, and partly from unlicensed dealers within the State. The department and the Tribunal relied upon Rule 16(2) (ii) of the Turnover and Assessment Rules in bringing to tax the sale price of the tanned product.
3. Precisely the same controversy arises in T. C. No. 16 of 1959 in respect of a turnover of Rs. 2,58,453 and Rs. 1,31,995 in T. C. No. 19 of 1959-
4. The contention advanced against the assessment is shortly that the petitioners are not liable to be taxed on the sales turnover of the tanned hides and skins, as it offends against the scheme of single point taxation. The argument is that in so far as hides and skins are concerned, the taxation is invariably at the purchase point, and if the taxing authorities have failed to assess the turnover at that point, it is not open to them to rely upon a transaction which is not at the point fixed, that is to say, there is no second point at which the goods in question can be brought to tax.
5. It is, as we have stated, common ground that these raw hides and skins were purchased partly outside the State. Part of these purchases was also effected from unlicensed dealers within the State. In the case of both these purchases, the department and the Tribunal took the view that the scheme of taxation as laid down in the rules fixing the single point at which the tax could be levied did not include purchases which were effected from unlicensed dealers or purchases which, were completed outside the State. Learned counsel however contended that in so far as the goods in his hands as a licensed tanner and dealer are concerned, he should have been taxed only on the purchase value, as that is the point of taxation contemplated by the scheme under the Act. The question is whether this contention is correct.
6. The Turnover and Assessment Rules fix the point of levy of tax. These rules were amended with retrospective effect from 1st April, 1955. It is not contended before us that the retrospective operation of these rules is in any way unconstitutional. We therefore confine ourselves to examining whether these rules, as they stood during the year of assessment, fixes the single point at any particular stage, and, if so, in relation to the goods in question, what that point is.
7. Section 5 providing for the fixation of a single point reads :
Subject to such restrictions and conditions as may be prescribed, including conditions as to licences and licence fees...the sale of hides and skins, whether tanned or untanned, shall be liable to tax under Section 3, Sub-section (1), only at such single point in the series of sales by successive dealers as may be prescribed.
8. The prescription of a single point is made under the Turnover and Assessment Rules. Rule 4, in making provision for the determination of the turnover of a dealer, states that the gross turnover of a dealer shall be the amount for which the goods are bought by the dealer in the case of '(d) untanned hides and skins bought by a licensed tanner in the State, and (e) untanned hides and skins exported outside the State by a licensed dealer in hides and skins.' This rule was amended with effect from the 1st of April, 1955, substituting a single Clause of (d) and (e) above. The result is that the gross turnover of a dealer shall be the amount for which the goods are bought by the dealer in the case of untanned hides and skins. It will be noticed that this rule does not purport to fix any point for the purpose of taxation in the series of sales by successive dealers. It only provides for the determination of the turnover at such point at which the transaction might be liable to tax. In order to determine what the point is, we have to turn to Rule 16.
9. Rule 16(1) provides for the levy of tax in the case of untanned hides and skins from the dealer who is the last purchaser in the State on the amount for which they are bought by him. This rule will not be applicable to part at least of the transactions covered by the present revision petitions. Certainly, in so far as the goods that were purchased outside the State are concerned, if the transactions of purchases were completed outside the State, the petitioners cannot be regarded as the last purchasers in the State. It is also clear from the scheme of the Act and the rules that the person who will be the last purchaser in the State of untanned hides and skins would be either the tanner who converts the raw hides and skins into tanned hides and skins or who exports the raw hides and skins. Where export is not involved, it is obvious that Rule 16(1) lays the liability to tax on the tanner who should necessarily be the last purchaser in the State of the raw hides and skins. Rule 16(2) falls into two parts and it deals with the case of hides and skins which have been tanned outside the State or are tanned inside the State. In either of these cases, the rule provides that the tax shall be levied from the dealer who is the first dealer in the tanned hides and skins. Clearly, the taxation of the tanned hides and skins in cases where the hides and skins in their raw condition had been subjected to tax would be in violation of the single point scheme of taxation. The rule, therefore, exempts by a proviso the taxation of the tanned hides and skins in cases where the dealer has already been taxed on the untanned hides and skins out of which the tanned hides and skins had been produced. The effect of these rules is that the single point is provided in the alternative, that is to say, the tax is payable either on the raw hides and skins by the last purchaser in the State or on the tanned hides and skins by the first dealer in such hides and skins in the State, where tax has not been levied on the purchase of raw hides and skins. It is not open to the department to say that they would disregard the first point and levy the tax at the second point, because by the proviso the sales of tanned hides and skins in respect of which tax had been levied in their raw condition under Rule 16(1) stand exempted. It follows, therefore, that if the levy of tax under Rule 16(1) is permissible, the department cannot resort to Rule 16(2).
10. The contention of the learned counsel for the petitioners as far as we are able to understand it, seems to be that notwithstanding that the petitioners purchased the raw hides and skins either outside the State or from unlicensed dealers, they are nevertheless taxable only on the purchase value of the raw hides and skins and not on the sale value of the tanned hides and skins. Taking the case of the purchase from unlicensed dealers, it is claimed that in the previous year 1954-55, such purchase had been effected, and part of the stock so purchased and available still in the raw condition on 1st April, 1955, the assessment year in question, was brought to tax on their sale after tanning. This is objected to by the petitioner. We are unable to see how the purchases from the unlicensed dealers which took place in the year previous to the year of assessment could be taxed at all. During the year in which such purchases were effected, Rule 16(2)(i) fixed the point of tax in the case of untanned hides and skins on the tanner on the amount for which the hides and skins are bought by him. But this rule was conditional in this manner : 'No tax shall be levied on the sale of untanned hides and skins by a licensed dealer in hides and skins except at the stage at which such hides and skins are sold to a tanner in the State', that is to say, the purchase turnover in the hands of the tanner for the purpose of the levy of tax of untanned hides and skins took into account only the sale to him by a licensed dealer in hides and skins. In so far as raw hides and skins purchased from the unlicensed dealers were concerned, Rule 16(2)(i) did not fix any point of taxation. It follows therefore that the petitioners could not be taxed on the purchase value of the raw hides and skins which they purchased from unlicensed dealers. We do not understand the learned counsel to say that notwithstanding that in the case of the purchase from unlicensed dealers the rules did not provide the stage for taxation, they should nevertheless be taxed only on such purchase value and not on the sale value of the tanned hides and skins. As we have pointed out, the stage of purchase from the unlicensed dealers was not a point fixed by these rules as required by Section 5 of the Act. Unless this purchase transaction can be attracted to the point fixed by these rules, the machinery of the Act did not provide for the inclusion of that purchase turnover in the assessable turnover of the tanner.
11. The next question is whether the levy of tax on the tanned hides and skins produced out of the raw hides and skins purchased from outside State is justified by the rules. As we have stated already, these rules were amended with effect from 1st of April, 1955. Rule i6(2)(ii) provided the point of tax in this manner. In the case of tanned hides and skins which have been tanned within the State, the tax shall be levied from a person who is the first dealer in such hides and skins not exempt from taxation under Section 3(3) on the amount for which they were sold by him, provided that if he proves that the tax has already been levied under Sub-rule (1) on the untanned hides and skins out of which the tanned hides and skins had been produced, he shall not be so liable. The rule clearly specifies that where the untanned hides and skins have not suffered tax in the sense that the purchase thereof was a transaction which could be brought to levy of tax under the rules, the dealer would be liable to tax on the sale value of the tanned hides and skins. In objecting to the tax on the sale value of the tanned hides and skins, learned counsel only reiterates his earlier argument that in whatsoever manner he might have become possessed of the untanned hides and skins, he is liable only on the purchase of such untanned hides and skins. But, as we have pointed out, unless the rules fixed the point of taxation as at that point in the case of any particular transaction, it is obvious that the incidence of taxation would not fall upon it. In the amended Rule 16(1), which was effective during the year of assessment, the purchase of untanned hides and skins was liable to tax only in the hands of the last purchaser in the State on the amount for which they are bought by him. In the case of untanned hides and skins purchased outside the State, this rule would have no application whatsoever and in such cases, the point of taxation is not fixed at the untanned stage at all. There can therefore be no lawful levy of tax in respect of the purchases made outside the State under Rule 16(1). This is not therefore a case where the point of taxation at the stage of purchase was available to the department but they chose to tax the tanned product. As we have pointed out, had they purported to do so, it would have been illegal. This is clearly a case where the stage of purchase was not located at the point fixed in the series of successive sales. The levy of tax therefore on the tanned goods is correct.
12. In T.C.No. 16 of 1959, arising out of T.A.No. 151 of 1958, a further question arises. The dispute is with regard to a turnover covered by sales of raw hides and skins. According to the petitioners, they entered into contracts with foreign buyers and delivered shipping documents such as bills of lading to the local banks against the payment of the price. It was claimed that the local banks should therefore be deemed to be the agents of the foreign buyers, that is to say, the foreign buyers through their agents, the local banks, had effected the purchase within the State. If that is so, learned counsel contends that the foreign buyers should be deemed to be the last purchasers in the Madras State and that the assessment of the petitioners is not within the rules. The question is whether this contention is correct.
13. Under Rule 16(1), the tax is leviable from the dealer who is the last purchaser in the State in the case of untanned hides and skins. Accepting the course of the transaction as stated on behalf of the petitioners to be correct (no records have been produced before us) would the foreign buyer come within the scope of the expression 'last purchaser in the State of Madras ?' The course of the transaction, as stated above, unmistakably indicates that the sale by the petitioners to the foreign buyer is a sale in the course of export, a sale which is exempt from tax by virtue of the constitutional protection under Article 286. We are not prepared to accept the claim that the bank functioned as the agent of the foreign buyer for the purpose of taking possession of the goods in question. Had the bank purported to do so before the goods, covered by the transaction, entered the stream of the export trade, it might be contended with great plausibility that the bank was the last purchaser in the State. If the bank is not then the last purchaser, obviously the petitioners are the last purchasers in the State. It must be remembered that it is not the sale transaction by the petitioners to the foreign buyers that is brought to tax. Prior to 1st April, 1955, the rule as it stood stated, 'in the case of untanned hides and skins which are not sold to a tanner in the State but are exported outside the State, the tax shall be levied from the dealer who was the last dealer...who buys them in the State on the amount for which they were bought by him.' Under that rule, as it stood, though the levy of the tax was on the occasion when the goods were exported, the actual transaction that was taxed in the hands of the dealer was his previous purchase. The present rule which governs the transaction in question dropped the distinction between raw hides and skins sold to a tanner and those exported outside the State and fixed the stage of levy as the dealer who is the last purchaser on the amount for which they are bought by him. If the foreign buyer is not the last purchaser before the export, it is only the petitioners who could be regarded as the last purchaser in the State and the levy of the tax on the amount for which the goods were bought by them is fully covered by Rule 16(1).
14. In the result, the contentions fail and the petitions are dismissed with costs. Counsel's fee Rs. 50 in each case.