1. The respondents are dealers in motor spare parts. As against the gross turnover of Rs. 4,28,000 and odd returned by them, the dealers claimed a sum of Rs. 1,21,506 as representing second sales of auto spare parts. Since auto spare parts are taxable at the stage of first sale only, this turnover was exempt from tax. But the Joint Commercial Tax Officer found that the respondents had charged tax at 6 per cent. on the sale value of the goods covered by this turnover. In the view that the respondents had collected sales tax on the transactions of sales effected by them, the assessing authority held that the amount of tax so collected was recoverable from the respondents under-Section 8-B(2) of the Act. Objection was taken to this demand. The respondents contended before the Appellate Assistant Commissioner that the sales in question were not liable to be taxed at all and that the levy of tax on these goods at the stage of second sale is opposed to law. They claimed further that the collection of tax made by them on the occasions of their sales was not sales tax on the transactions of sales but reimbursement of the sales tax which they had paid to the first sellers. It was urged therefore that the collections only represented part of the price which they themselves had paid to their sellers. Though it was separately indicated in the bills issued by them to their customers, in fact they did not charge any sales tax. The contention accordingly was that Section 8-B(2) would not apply. The Appellate Assistant Commissioner rejected this contention. He observed thus:
The collections are exhibited in bills for sales as 'sales tax at 6 per cent. paid to first seller'. Admittedly, the collections, as such, in a bill for sale has no reference to the tax, if any, collected from the appellants by their suppliers. While the appellants' suppliers collected from them tax calculated on the value for which they sold the goods (i.e.) on the appellants' purchase price, the appellants have collected tax calculated on the value for which they sold the goods. It is, therefore, clear that what was collected is not the tax paid to the purchaser. It cannot be classified as an item given in the bill to give price structure and there is no question of its forming part of the purchase price. The collections have been worked out at the rate of 6 per cent. on the sale value of the goods....
2. The finding was therefore that it was not a case where the appellants had indicated their sale price exclusive of sales tax which they had paid to the first seller and added thereto such sales tax paid by them to the first seller. It was actually a sales tax computed on the sale price of the goods. The Appellate Assistant Commissioner accordingly held that though the transaction of second sale was not liable to be taxed, the tax was in fact collected by the respondents on such second sale transactions.
3. A further appeal was taken to the Tribunal. The Tribunal came to the conclusion that the respondents had not collected any amount purporting to be by way of sales tax. The Tribunal observed thus :
The question is whether the appellant has collected this 6 per cent. purporting to be by way of sales tax under this Act. It seems to us that he has collected this amount as money which he has already paid for to get the article from the first seller for second sales to his customers. He could very well have consolidated and put it as the sale price. His not having done so and mentioning the price as well as the tax separately cannot mean that he collected it under this Act from the customers. Wherever he has collected sales tax under this Act he has mentioned as sales tax simpliciter which distinction cannot be ignored in applying the provision Under-section 8-B (2).
4. The Tribunal proceeded:
The intendment of the words used in the collection of 'sales tax 6 per cent, paid to the first seller' can only be that the appellant acted as the transmitting agent in respect thereof to the first seller from his customers. The appellant perforce had to do it in order to convince his customers that he was not charging them more unconscionably. Nor did he purport to collect it from his customers as chargeable on them under the Act for that seems to be the gist of the words used 'sales tax 6 per cent. paid to the first seller', since the transactions were exempt from sales tax as they were not first sales. The taxing authorities stressed unduly on that aspect where instead of charging on the exact sums paid for purchases by the appellant, he calculated tax instead on its price...
5. The reasoning above is not quite intelligible ; but the Tribunal took the view that the demand Under-section 8-B(2) was unsustainable and allowed the appeal. It is against this order that the State has preferred this revision petition.
6. The principal contention of the learned Government Pleader is that what the respondents have collected is 6 per cent, tax on their sale price, which obviously included the tax on the first sale which the respondents had paid already. Notwithstanding that the second sale of auto spare parts is not liable to tax, if the respondents purportedly collected sales tax on the sale price of the goods at which they offered the goods for sale, the argument is that they had really collected tax on this transaction of second sale. It would be instructive to examine some of the bills. Bill No. 6069 dated 15th November, 1958, sets out certain items of sale making a total of Rs. 217. The next entry is 'Tax paid to first seller at 6 per cent.-Rs. 13-02 nP.' Total Rs. 230-02 ; 'Packing and forwarding charges-Rs. 2-98 nP.' Total Rs. 233-00. The question that should be examined, as rightly urged by the learned Government Pleader, is what is the nature of the amount of Rs. 217 If Rs. 13-02, stated to be tax paid to the first seller, was purported to be recovered from the respondents' customer, the respondents should establish that the total of Rs. 217 marked as the sale value of the goods did not include any portion of the sales tax which they paid to the first seller. The entire argument of Mr. T. V. Viswanatha Iyer purports to proceed on that basis. If that is so, the price which they have quoted could exclude the sales tax paid by them to the first seller, but must necessarily include the respondents' profit margin ; that is to say, the sum of Rs. 217 is made up of cost price of the goods exclusive of sales tax plus the profit margin of the dealers. The cost price of the goods in question should therefore be less than Rs. 217. If the cost price was less than Rs. 217, the sales tax which the respondents would have paid to the first seller could not be 6 per cent, on this sum of Rs. 217 but should have been somewhat less ; but what the respondents have done is nevertheless to calculate 6 per cent, tax on their sale price of Rs. 217 and indicate it as tax paid to the first seller, i.e., Rs. 13-02, which is obviously impossible unless it be their case that the respondents have not charged any profit at all upon their transaction. This is a point which has certainly not been given its due weight in the order of the Tribunal. Nor has Mr. T. V. Viswanatha Iyer, learned counsel for the respondents, been able to explain how it happens that the tax paid to the. first seller is computed at 6 per cent, on the sale price at which the respondents sold the goods. Actually therefore the tax shown as paid to the first seller in these bills exceeded the tax which the respondents must have paid to the first seller.
7. What is however contended by the learned counsel for the respondents is that the respondents did not purport to collect the amount by way of tax, that is to say, that they only purported to collect the tax that had been paid to the first seller and that they did not purport to collect any tax as payable to them as the second sellers. We are not satisfied that this argument has any substance. It is suggested that the buyer would have known that this is a second sale not liable to tax and when it was clearly shown to the customer that the tax that was indicated in the bill was no tax on that transaction but the tax due on an earlier transaction, there has necessarily been no collection of tax on this transaction. We have earlier shown that this argument does not accord with the facts. It is true that in other bills where the respondents have effected first sales of the goods, they have charged sales tax at 6 per cent, and that has been paid over to the State. Learned counsel contends that the distinction in the manner in which the bills are made out should clearly establish that the respondents did not collect any amount on the sale transactions at all. Here again the argument ignores the factual position that sales tax indicated as tax paid to the first seller is really based not on the price at which the respondents purchased the goods but on the price at which they sold the goods. This feature completely destroys the argument that no sales tax was collected on the sale transaction by the respondents.
8. The Tribunal also seems to have assumed that since sales tax was not chargeable in respect of a second sale, the tax could not be said to have been collected under this Act. Section 8-B(2) however clearly lays down that where a person 'who has collected or collects any amount purporting to be by way of tax under this Act...whether or not any tax is due from him under this Act in respect of the transaction in which he has collected or collects such amount, shall pay over to the State Government....' If the Tribunal thought that under this Act no sales tax was collectable on a second sale of these goods and that the collection was therefore not under this Act, it ignores the other part of the section whereunder the liability to pay over to the State is cast in respect of amounts collected in a transaction which does not admit of the collection of any tax under the Act. The underlying principle of the section is where a dealer purporting to exercise a right conferred upon him to pass on a tax collects an amount which he designates as a tax even when the transaction is not one subject to the levy of tax, he has nevertheless to pay over the amount to the State, and in this case we have pointed out that the tax was clearly one calculated upon this sale transaction and the sale price, and though styled as tax paid to the first seller, it was in fact not so.
9. The order of the Tribunal has misconceived the factual position, which has not been controverted during the course of the arguments by the learned counsel. The order of the Tribunal is set aside. The petition is allowed ; there will, however, be no order as to costs.