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PETITIONER: CENTRAL WINES, HYDERABAD ETC.

       Vs.

RESPONDENT: SPECIAL COMMERCIAL TAX OFFICER ETC.

DATE OF JUDGMENT09/01/1987

BENCH: THAKKAR, M.P. (J) BENCH: THAKKAR, M.P. (J) SINGH, K.N. (J)

CITATION:  1987 AIR  611            1987 SCR  (1) 945  1987 SCC  (2) 371        JT 1987 (1)   127  1987 SCALE  (1)15

ACT: Andhra   Pradesh  General  Sales  Tax  Act,  1957.   section 2(s)--"Turnover"--Whether it includes sales tax charged from the buyer and shown in the Bill, by virtue of the expression ’any  other  sum charged by the dealer whatever be  the  de- scription,  name  or object thereof’ occurring in  the  said definition  in section 2(s) and as such the amount of  Sales Tax either shown in the Bill or by Debit Voucher is includi- ble in the turnover for the purposes of computing the  sales tax liability of assessees.

HEADNOTE:     In Andhra Pradesh, Sales tax is levied under the author- ity of sections 5 and 5A  of the A.P. General Sales Tax Act, 1957  on the ’turnover’ of a dealer. The  expression  ’turn- over’ has been defined in section 2(s) inter alia to include the  total amount set out in the bill of sale or  the  total amount charged as consideration for the sale or purchase  of goods  whether such sales includes any other sum charged  by the  dealer  whatever  be the description,  name  or  object thereof.  Whether or not sales tax collected by the  dealers from  the  buyers  would fall under the  inclusive  part  of aforesaid  definition  is the question raised in  these  ap- peals.  It  has arisen in the context of two  categories  of cases, namely:    (i) wherein the sales tax has been separately set out  in the bill of sale and is collected by the seller at the  time of sale immediately after or at the time of delivery of  the goods.    (ii)  wherein the sales tax is not mentioned in the  bill at all but simultaneously collected with the delivery of the goods separately under debit notes whereby the exact  amount of  sales  tax due is collected from the  purchaser  by  the seller but the said amount is kept in the suspense account.     The submissions urged by the appellants before the  High Court in their Writ Petitions were:   1.  That  where the amount is  collected  specifically  as ’tax’, it cannot be deemed to be a part of the consideration for the sale of 946 the  goods and as such it cannot form part of  the  turnover

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within the meaning of section 2(s) of the Act.   2.  Inasmuch  as the Act does not prohibit the  dealer  to pass  on  the sales tax component of the sale price  to  the purchaser,  the dealer should he deemed to he an  agent,  of the Government for collecting the sales tax amount.     The  High Court repulsed the plea of the assessees  that the amount of sales tax so collected from the buyers was not includible in the turnover for the purposes of computing the sales  tax liability of the assessees. The concerned  asses- sees have approached the Supreme Court by way of the present group of appeals by Special Leave. Dismissing the appeals, the Court,     HELD:  1.1  The sales tax component of  the  sale  price charged by the vendor to the vendee is not collected by  him as an agent of the Revenue (State Government). [ 953D-E]     1.2  Some  of the salient features of the  A.P.  General Sales Tax, 1957 are:-    (1  )  There is no provision in the Act which  imposes  a legal obligation on the vendor of the goods to recover sales tax on the goods sold to the vendee. For instance the vendor is not prohibited from selling the goods withont  recovering the sales tax from the vendee. The seller may not charge  or recover the sales tax from the buyer. He will not he violat- ing  any provision of the Act or incurring any penal  conse- quence  by  doing so. In other words the collection  of  the sales  tax from the buyer is a matter of his choice. He  may or  may not do so. If he does not do so he does  not  expose himself to any penal consequence or legal liability.    (2)  There is no legal obligation imposed by the  Act  on the  buyer of the goods to pay sales tax at the time of  the purchase of the goods. If the vendor does not insist on such payment  and if the buyer does not pay the tax he  does  not violate any provision of the law or incur any legal liabili- ty.    (3)  There  is no provision in the Act  which  casts  any legal  duty  on  the vendor to mention in the  bill  or  the voucher  issued to the buyer that sales tax has been  recov- ered from the buyer. Nor 947 is  then  any obligation on him to show that  sales  tax  is included  in the price charged or to specify the  amount  of sales tax separately in the bill or voucher.   (4)  Nothing in the Act requires the dealer to  set  apart the amount recovered from the vendee by way of sales tax. He is neither bound to keep a separate account of the amount so recovered  nor  to keep it in a separate cash  box.  He  can treat it as his own money, keep it in his own cash box,  and use  it  as  flit were his own property. If  the  amount  is stolen  or is misappropriated by his employee it is  he  who loses  his own money and it is not the Revenue which has  to bear the loss.   (5)  His  liability to pay sales tax is analogous  to  his liability to pay the Municipal taxes or the Income tax  etc. The  liability is to pay from his own property and not  from any  property  earmarked for that purpose from  out  of  the collection of tax made from the buyers.   (6) The dealer is no doubt required to deposit along  with sines  tax return periodically the amount of tax due on  the sales effected by him. But that is merely a convenient  mode of discharging his liability at the intervals as enjoined by the  Act. It is neither linked nor dependent on recovery  if any  made  by him from the buyer (which he may  or  may  not make).   (7) The dealer is not paid any remuneration or reward  for collecting the sales tax. If he was acting as an Agent,  the

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State  would  he  obliged to pay him  some  remuneration  or reward,  for,  the State cannot oblige him to  work  as  its agent  gratis. It would amount to forced labour if  it  were otherwise. [951C-H; 952A-D]     The  aforesaid  factors, viewed  cumulatively,  make  it evident that a dealer who sells the goods does not act as an agent  for  the State in collecting the sales tax  from  the persons  to whom he sells the goods. If he was acting as  an Agent  he would be required to take reasonable care  of  the sale proceeds as a bailee. He would also he required to  set apart  the  same without intermingling with his  own  money, for, he cannot use the monies belonging to the State for his own  private purposes. If the intention of  the  legislature was to make him an agent, the legislature would have imposed penal liability on the vendor if he were not to collect  the taxes. He would he obliged to maintain separate accounts  of the collection made by him as also to treat the  collections as the collec- 948 tions made by the agent on behalf of the principal. [952D-F]     2.1  The sales tax component included in the sale  price is includable in making the aggregate for the purpose of the ’turnover’  within the meaning of section 2(s), even  though it  is recovered as a tax from the purchaser and not as  the price of the goods charged to the vendee. [953F]     2.2  Recovery of tax from the purchasers is not under  a statutory obligation, in the instant case. Even if therefore the  bill or the voucher issued to the  purchaser  indicates the amount of sales tax separately what is collected by  the vendor  from the vendee is not tax but is merely a  part  of the  sale price charged by the vendor to the vendee. So  far as the statute is concerned it does not cast any  obligation on  the purchaser of the goods to pay any tax and  therefore what  is collected by the vendor from the vendee by  way  of consideration  for passing the property in the goods to  the vendee is the price charged by him and not tax collected  by him from the purchaser. The amount of money which goes  from the  pocket of the vendee to the pocket of the vendor  as  a condition  or consideration for passing of the  property  in the goods is thus the sale price and not the tax. It is  the amount,  but for the payment of which, the vendor would  not transmit his title to the goods in favour of the vendee, and not  any  amount paid by the vendee towards  any  taxability incurred by him on making the purchase of the goods. Nothing would  turn  on whether the bill or voucher  issued  to  the vendee is so made out to show that the sales tax is  charged separately. If he does so he would be doing so only for  the sake Of his accounting purposes and convenience. The consid- eration obtained by him from the vendee would in the eye  of law  be  the sale price regardless of what  nomenclature  is given to a part of the price charged by him, [952F-H;  953A- E]     2.3  The amount includible in the turnover on  the  true interpretation  of  the relevant  provisions  cannot  become excludible merely by reason of the accountancy device adopt- ed by the assessee concerned. [956D-E]     M/s George Oakes (P) Ltd. v. State of Madras, [1961]  12 STC 476, followed.     McDowel & Company v. Commercial Tax Officer, AIR 1977 SC 1459  and Anand Swarup Mahesh Kumar v. The  Commissioner  of Sales Tax, [1980] 4 SCC 451, distinguished.     Government  of Andhra Pradesh v. East  India  Commercial Company  Ltd., [1957] 8 STC 114 and State of Andrha  Pradesh v. Bujranga Jute Mills Ltd., [1955] 6 STC 376, referred to. 948

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JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1118  of 1981 etc.     From  the  Judgment and Order dated  17.11.1980  of  the Andhra Pradesh High Court in W.P. No. 5468 of 1979. A. Subba Rao for the Appellants. Dr. Y.S. Chitate and T.V.S.N. Chari for the Respondents. The Judgment of the Court was delivered by     THAKKAR,  J.  In a batch of Writ  Petitions  and  T.R.C. cases before the High Court the question raised in substance was formulated as under:- "The  question, therefore, that arises in both these  cases, is whether the amount collected by the seller from the buyer which comprises of the two components the actual sale  price and  the  sale  tax is a part of the  "turnover"  and  comes within  the expression "any other sum charged by the  dealer whatever  be  the  description,  name  or  object   thereof" occurring in the definition in Section 2 (s)1 of the Act. In the  former case it is shown expressly as sales tax  and  in the latter case it is shown in the form of debit notes.  But in  both  the cases it is collected by the seller  from  the buyer  at the time of the sale or rather as a  condition  of sale." 1. Section 2(s) of the Andhra Pradesh General Sales Tax  Act 1957  "turnover" means the total amount set out in the  bill of  sale  or if there is no bill of sale, the  total  amount charged  as the consideration for the sale or  purchase  for the sale or purchase of goods whether such consideration  be cash, deferred payment or any other thing of value including any sums charged by the dealer for anything done in  respect of  goods  sold at the time or before the  delivery  to  the goods and any other sums charged by the dealer, whatever, be the description, name, object thereof: Provided  that in the case of a sale by a person whether  by himself or through an agent of agricultural or horticultural produce  grown by himself or grown on any land in  which  he has  an  interest whether as owner,  usufructuary  mortgage, tenant or otherwise the amount of the consideration relating to  such sale shall be excluded from his turnover when  such produce is sold in the form in which it was produced,  with- out being subjected to any physical chemical or other  proc- ess  for being made fit for consumption save  mere  cleaning grading or sorting.            X   X      X      X      X      X            X   X      X      X      X      X" 950     The  High Court repulsed the plea of the assessees  that the amount of sales tax so collected from the buyers was not includible in the turnover for the purposes of computing the sales  tax liability of the assessees. The concerned  asses- sees have approached this Court by way of the present  group of appeals by Special Leave.     Sales tax is levied under the authority of Section 5 and Section  5-A on the ’turnover’ of a dealer.  The  expression ’turnover’  has been defined by Section 2(s) inter  alia  to include the total amount set out in the bill of sale or  the total  amount charged as consideration for the sale or  pur- chase  of  goods whether such sales includes any  other  sum charged  by the dealer whatever be the description, name  or object  thereof. Whether or not sales tax collected  by  the dealers from the buyers would fail under the inclusive  part of  aforesaid  definition is the question  raised  in  these

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appeals.  It has arisen in the context of two categories  of cases, namely: (i) wherein the sales tax has been separately set out in-the bill  of sale and is collected by the seller at the time  of sale  immediately  after or at the time of delivery  of  the goods. (ii)  wherein the sales tax is not mentioned in the bill  at all  but simultaneously collected with the delivery  of  the goods separately under debit notes whereby the exact  amount of  sales  tax due is collected from the  purchaser  by  the seller but the said amount is kept in the suspense account.     The  submissions which were unsuccessfully urged  before the High Court and are reiterated before us on behalf of the assessees are:       1. That where the amount is collected specifically  as ’tax’, it cannot be deemed to be a part of the consideration for the sale of the goods and as such it cannot form part of the turnover within the meaning of Section 2(s) of the Act.        2.  Inasmuch as the Act does not prohibit the  dealer to pass on the sales tax component of the sale price to  the purchaser, the dealer should be deemed to be an agent of the Government for collecting the sales tax amount.     In repelling the aforesaid contentions, strong  reliance was  placed by the High Court on its full bench decision  in Government of Andhra Pradesh v. East India Commercial Compa- ny Ltd., [1957] 8 STC 114 951 wherein  an  cartier decision of a Division Bench  State  of Andhra Pradesh v. Bujranga Jute Mills Ltd., [1955] 6 STC 376 to  the effect that sales tax collected by the  dealer  from the  buyers  cannot be included in his turnover and  is  not liable to be taxed again was over ruled. It may incidentally be  mentioned that the aforesaid full bench judgment of  the High  Court  was noted with approval by this  Court  in  M/s George Oakes (P) Ltd. v. State of Madras., [1961] 12  S.T.C. 476.     Some salient features require to be underscored in order to test the merits of these submissions:-       (1)  There is no provision in the Act which imposes  a legal obligation on the vendor of the goods to recover sales tax on the goods sold to the vendee. For instance the vendor is not prohibited from selling the goods without  recovering the sales tax from the vendee. The seller may not charge  or recover the sales tax from the buyer. He will not be violat- ing  any provision of the Act or incurring any penal  conse- quence  by  doing so. In other words the collection  of  the sales  tax from the buyer is a matter of his choice. He  may or  may not do so. If he does not do so he does  not  expose himself to any penal consequence or legal liability.       (2) There is no legal obligation imposed by the Act on the  buyer of the goods to pay sales tax at the time of  the purchase of the goods. If the vendor does not insist on such payment  and if the buyer does not pay the tax he  does  not violate any provision of the law or incur any legal liabili- ty.       (3)  There is no provision in the Act which casts  any legal  duty  on  the vendor to mention in the  bill  or  the voucher  issued to the buyer that sales tax has been  recov- ered  from the buyer. Nor is there any obligation on him  to show  that sales tax is included in the price charged or  to specify  the amount of sales tax separately in the  bill  or voucher.       (4)  Nothing  in the Act requires the  dealer  to  set apart  the amount recovered from the vendee by way of  sales tax.  He is neither bound to keep a separate account of  the

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amount  so recovered nor to keep it in a separate cash  box. He  can treat it as his own money, keep it in his  own  cash box,  and  use  it as if it were his own  property.  If  the amount is stolen or is misappropriated by his employee it is he  who loses his own money and it is not the Revenue  which has to bear the loss. 952       (5) His liability to pay sales tax is analogous to his liability to pay the Municipal taxes or the Income-tax  etc. The  liability is to pay from his own property and not  from any  property  earmarked for that purpose from  out  of  the collection of tax made from the buyers.       (6)  The dealer is no doubt required to deposit  along with  salestax return periodically the amount of tax due  on the  sales effected by him. But that is merely a  convenient mode  of discharging his liability at the intervals  as  en- joined by Act. It is neither linked nor dependent on  recov- ery  if any made by him from the buyer (which he may or  may not make).       (7) The dealer is not paid any remuneration or  reward for collecting the sales tax. If he was acting as an  Agent, the  State would be obliged to pay him some remuneration  or reward for the State cannot oblige him to work as its  agent gratis.  It would amount to forced labour if it were  other- wise.     The  aforesaid  factors, viewed cumulatively, make it evident that a dealer who sells the goods does not act as an agent  for  the State in collecting the sales tax  from  the persons  to whom he sells the goods. If he was acting as  an Agent  he would be required to take reasonable care  of  the sale proceeds as a bailee. He would also be required to  set apart  the  same without intermingling with his  own  money, for, he cannot use the monies belonging to the State for his own  private purposes. If the intention of  the  legislature was to make him an agent, the legislature would have imposed penal liability on the vendor if he were not to collect  the taxes. He would be obliged to maintain separate accounts  of the collection made by him as also to treat the  collections as the collections made by the agent on behalf of the  prin- cipal. It is therefore futile to contend that the sales  tax component  of  the sale price charged by the vendor  to  the vendee is collected by him as an agent of the State  Govern- ment.  Even if therefore the bill or the voucher  issued  to the  purchaser indicates the amount of sales tax  separately what  is collected by the vendor from the vendee is not  tax but is merely a part of the sale price charged by the vendor to  the vendee. So far as the statute is concerned  it  does not cast any obligation on the purchaser of the goods to pay any  tax and therefore what is collected by the vendor  from the vendee by way of consideration for passing the  property in  the goods to the vendee is the price charged by him  and not  tax collected by him from the purchaser. The amount  of money which goes from the pocket of the vendee to the pocket of the vendor as a 953 condition  or consideration for passing of the  property  in the goods is thus the sale price and not the tax. It is  the amount,  but for the payment of which, the vendor would  not transmit his title to the goods in favour of the vendee, and not any amount paid by the vendee towards any tax  liability incurred  by him on making the purchase of the goods. It  is no  doubt true that a dealer as a prudent businessman  would pass on the burden in’ the context of the sales tax liabili- ty to the buyer. But then he would be doing so in order that he  may not make a loss on the transaction. Inasmuch  as  no

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businessman  Carries on business with a view to incur  loss, that  he would take into account this factor at the time  of collecting the sale price from the vendee stands to  reason. That  however  does not mean that he is collecting  the  tax from the purchaser (for which in fact he has no authority in law  under the Act). Just as a businessman would  take  into account  the  expenses that he would have to incur  for  the running  of  the business such as rent,  salary,  and  other establishment  charges, just as he would keep  a  reasonable profit margin in the context of the investment made by  him, he  would  also take into account the factor that  he  would have  to pay sales tax on the turnover having regard to  the statutory liability imposed on him by the Act. That  however does  not mean that what he is charging from the  vendee  is the  tax and not a part of the sale price. So also it  would not  mean that he has been acting as an agent  for  Revenue. Nothing would turn on whether the bill or voucher issued  to the  vendee  is so made out to show that the  sales  tax  is charged separately. If he does so he would be doing so  only for the sake of his accounting purposes and convenience. The consideration  obtained by him from the vendee would in  the eye of law be the sale price regardless of what nomenclature is given to a part of the price charged by him.     Thus  there is no substance whatever in  the  contention that  the sales tax component included in the sale price  is not  includible in making the aggregate for the  purpose  of the  turnover, it being a tax recovered from  the  purchaser and not the price of the goods charged to the vendee.     What  is more, in George Oakes (Pvt.) Ltd. v.  State  of Madras,  [1961]  12 STC 476 this Court had  an  occasion  to consider  a  similar challenge made in the  context  of  the constitutional  validity  of Section 8 B of  Madras  General Sales Tax Act 1939 wherein this Court has repelled this very argument in no unclear terms:- ’’Obviously. it is not the name the legislature accords to a payment by a purchaser to a seller, who is a dealer as 954 defined  by  the Act, that determines the  question  of  the legislative  competence.  No doubt section  8-B  called  the payment  as amount (collected) by way of tax. It is  equally true  that the statutory liability to pay the sales  tax  is laid on the dealer. What is taxable is not each  transaction of  sale but the total turnover of the dealer,  computed  in accordance with the provisions of the Act and the Rules. But it  is  well-recognised  that whatever be the  form  of  the statutory provisions, the ultimate economic incidence of the tax  is  on the consumer, the purchaser. It was  that  well- settled principle that was re-stated in Bengal Immunity  Co. Ltd.  v. State of Bihar. Even if the registered dealer  col- lects  the amount by way of tax under the authority of  sec- tion 8-B of the Act, the payment is by the purchaser on  the occasion of the sale by the dealer. Vis-a-vis the dealer  it is in reality part of the price the purchaser has to pay the seller for purchasing the goods."     Reliance  was  placed  by the appellants  on  McDowel  & Company  v. Commercial Tax Officer AIR 1977 SC 1459 in  sup- port  of the plea that the amount collected from the  buyers if  kept apart cannot be included in computing the  turnover of  the dealer. In our opinion, this submission  is  clearly misconceived. In McDowel’s case this Court was dealing  with the question as regards the includibility of excise duty and countervailing duty in the aggregate turnover of the dealer. This court has taken that view inasmuch as the excise duties and countervailing duties were paid directly by the purchas- ers to the excise authorities before removing the same  from

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the  distilleries or the bonded warehouses  and  accordingly the same were not includible in the turnover of the dealers. Since the amount was not charged or paid by the dealers  but by  the manufacturers, this Court upheld the  contention  of the assessees (vide paragraph 12 of the judgment).     This  decision  can  be of no avail  to  the  appellants because  in  the  present case the  amount  in  question  is charged or recovered by the sellers from the buyers  whether it is mentioned as Sales tax or not. The principle laid down in McDowel’s case cannot be applied to the factsituation  in the  present case. In fact in McDowel’s case the full  Bench decision  of the Andhra Pradesh High Court Govt.  of  Andhra Pradesh  v. East India Commercial C. Ltd., AIR  1967  Andhra Pradesh  83 has been noted with approval in paragraph 17  of the judgment. It was further argued by learned counsel for the  appellants draw- 955 ing  inspiration from Anand Swarup Mahesh Kumar v. The  Com- missioner  of  Sales Tax, [1980] 4 SCC 451 that  the  matter requires  reconsideration in the light of  the  observations made therein. We are unable to accede to this submission. In Anand  Swarup Mahesh Kumar’s case this Court  was  concerned with the market fee’ collected by a dealer from the purchas- er  for being passed on to the market committee  under  U.P. Act  No.  XXV of 1964. It was an amount  which  the  statute authorised  the dealer to collect from the  purchaser  sepa- rately and directly under the authority of Section 17  (iii) (b)(1) of the said Act and to pass it on or make it over  to the  Market Committee. It is evident that it was  an  amount collected  by the dealer underthe statutory authority as  an agent  of  the Market Committee for being passed on  to  the Management Committee and therefore could not be treated as a component of the sale price of the goods which were sold  to the  purchaser. It was in this context that this Court  came to the conclusion that the Market fee so collected could not be included in the turnover as is evident from the pertinent passage:-   "From  the observations made in the decisions referred  to above,  it follows that where a dealer is authorised by  law to pass to any tax payabIe by him on the transaction of sale to the purchaser, such tax does not form part of the consid- eration  for purposes of levy of tax on sales  or  purchases but  where there is no statutory provision  authorising  the dealer  to pass on the tax to the purchaser, such  tax  does form  part of the consideration when he includes it  in  the price  and realizes the same from the purchaser. The  essen- tial  factor which distinguishes the former class  of  cases from the latter class is the existence of a statutory provi- sion authorising a dealer to recover the tax payable on  the transaction of sale from the purchaser. It is on account  of the above distinction that this Court held in Joint  Commer- cial  Officer, Division II, Madras-1 v. Spencer & Co.  (1975 Supp  SCR 439) that the sales tax which a seller’of  foreign liquor  was liable to pay under Section 21-A of  the  Madras Prohibition  Act, 1937 did not form part of the turnover  on which  sales  tax could be levied under the  Madras  General Sales  Tax  Act,  1959 because the seller  was  entitled  to recover the sales tax payable by him from the purchaser. The relevant part of Section 21-A of the Madras Prohibition Act, 1937 referred to above read thus: 21-A. Every person or institution which sells foreign 956 liquor--shall collect from the purchaser and pay over to the government  at such intervals and in such manner as  may  be

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prescribed,  a  sales tax calculated at the  rate  of  eight annas  in  the rupee, or at such the other rate  as  may  be notified  by the government from time to time, on the  price of the liquor so sold."     It  will  thus be seen that this Court has  again  reaf- firmed the position that the includibility must turn on  the question  as to whether or not the tax is  recoverable  from the  purchasers under a statutory obligation. This  decision cannot therefore be of any avail to the appellants  inasmuch as  there  is no such statutory provision in  the  Act  with which we are concerned.     Lastly  it  was argued that in the  second  category  of cases  where the sales tax was not included in the bill  and was kept in the suspense account by the seller, it could not be included in the total turnover. This fallacious  argument was  rightly  negatived by the High Court  for  the  obvious reason  that  the amount includible in the turnover  on  the true interpretation of the relevant provisions cannot become excludible merely by reason of the accountancy device adopt- ed by the assessee concerned.     There is no substance in any of the contentions urged on behalf  of the appellants. The view taken by the High  Court is unexceptionable. The appeals fail and are dismissed.  The interim orders shall stand vacated. The appellants assessees will be liable to pay the amount due as sales tax along with interest thereon @ 12% as per the condition imposed by  this Court  at the time of granting the interim stay.  The  sales tax authorities may recover the amount due by encashing Bank Guarantee  as also by effecting recovery in accordance  with law. S.R.                                                 Appeals dismissed. 957