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PETITIONER: DELHI CLOTH AND GENERAL MILLS CO.  LTD.  ETC.

       Vs.

RESPONDENT: COMMISSIONER OF SALES TAX, INDORE

DATE OF JUDGMENT28/07/1971

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. GROVER, A.N.

CITATION:  1971 AIR 2216            1971 SCR  945

ACT: Madhya  Pradesh General Sales Tax Act, 1958, ss. 2(c),  (o), (t),  and  4-Sales  Tax  recovered  from  buyer-If  part  of turnover.

HEADNOTE: The  assessee,  while selling goods, charged the  sales  tax separately  and  collected it from the buyers.  It  did  not include  the  sales-tax so collected in its  turnover.   The authorities under the Madhya Pradesh General Sales Tax  Act, 1958,  as  well as the High Court, held that the  sales  tax collected  from  the buyers was a part of the price  of  the goods,sold  and therefore should have been included  in  the asscssee’s turnover. In appeal to this Court, HELD: Under s. 4 of the Act the liability to pay tax is that of  the dealer.  There is no provision in the  Act  imposing any liability on the purchaser to pay the tax so imposed  on the  dealer  and there is no law empowering  the  dealer  to collect the tax from his buyer.  Hence the dealer would  not be  legally entitled to collect the tax payable by him  from his  buyer, and whatever collection the dealer.  makes  from his customers can only be by adding the tax to the price, lo that,  the  tax becomes part of the  valuable  consideration given  by  a  purchaser  for the  goods  purchased  by  him. Therefore,  the distinction between the two amounts-tax  and price-loses all significance, and the tax becomes a part  of the sale price as defined in s. 2(c) of the Act and must  be taken into consideration in computing the turnover. [948D-G; 950A] Tata Iron & Steel Co. Ltd. v. State of Bihar, [1958]  S.C.R. 1355,  M/s.  George Oakes (PI Ltd. v. State  of  Madras,  12 S.T.C.  476, Paprika Ltd. & Anr. v. Board of  Trade,  [1944] All.   E.R. 372 and Love v. Norman Wright  (Builders)  Ltd., [1944] 1 All.  E.R. 618, referred to. Deputy  Commissioner of Commercial Taxes, Coimbatore, v.  M. Krishnaswamy Mudaliar & Sons, 5 S.T.C. 88, distinguished.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos, 1272  and 1273 of 1967.

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Appeals  by special leave from the judgment and order  dated July  10,  1967 of the Madhya Pradesh High  Court  in  Misc. Civil Cases Nos. 61 and 62 of 1967.                             AND Civil Appeal No. 2453 of 1968. S.T.  Desai,  A. N. Sinha and G. S.  Chatterjee  for  the appellant (in C.As. Nos. 1272 and 1273 of 1967). A.   N. Sinha, for the appellant (in C.A. No. 2453 of 1968). I.   N. Shroff for the respondent (in all the, appeals). 60-1 S.C. India/71 946 The Judgment of the Court was delivered by Hegde,  J.These  appeals  by special leave  arise  from  the decision  of  the  High Court of  Madhya  Pradesh  in  three references  under  s. 44(1)of the’  Madhya  Pradesh  General Sales  Tax Act, 1958 (to be hereinafter referred to  as  the Act).   Those  references were made at the instance  of  the assessee  who  is the appellant in all these  appeals.   The question  of law referred to the High Court for its  opinion in  each one of these cases is identical and  that  question reads :               "In the facts and circumstances of the case is               the  sales tax recovered by the  petitioner  a               part  of the sale price as defined  in  clause               (o) of Section 2 of the Madhya Pradesh General               Sales Tax Act, 1958." Herein we are concerned with the assessment years 1961-1962, 1962-1963  and  1963-1964.   The assessee  is  a  dealer  in Vanaspati.    The  facts  found  are  that   while   selling Vanaspati, the assessee charged the sales tax separately and collected the same from his buyers.  To each of its buyer it issued a receipt in respect of each sale transaction wherein it  showed the price of the goods as such and the sales  tax payable  on  the  price of those  goods.   In  the  turnover returned  it did not include the sales tax collected  by  it from its buyers but the authorities under the Act as well as the High Court held that sales tax collected by it from  its buyers  was  a  part  of the price of  the  goods  sold  and therefore the same will have to be taken into  consideration in computing its turnover.  The assessee is challenging that conclusion. Section  4 of that Act is the charging section.  Sub-s.  (1) thereof says               "Every  dealer whose turnover during a  period               of  twelve  months immediately  preceding  the               commencement  of  this Act exceeds  the  limit               specified in sub-section (5), shall from  such               commencement  be liable to pay tax under  this               Act  on  his taxable turnover  in  respect  of               sales or supplies of goods effected in  Madhya               Pradesh." A  dealer  is defined in s. 2(d) as meaning any  person  who carries  on  the business of buying, selling,  supplying  or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration  or other valuable consideration, be it a society, a club,  firm or  association which buys goods from or sells, supplies  or distributes  goods  to its members or  commission  agent,  a broker,  a  del-creders agent, an auctioneer  or  any  other mercantile  agent, by whatever name called, who  carries  on the  business of buying, selling, supplying or  distributing goods on behalf of any principal. 947 "Turnover" is defined thus in S. 24t) "turnover"’.  used  in  relation to  any  period  means  the

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aggregate  of  the  amount  of  sale  prices  received   and receivable  by a dealer in respect of any sale or supply  or distribution  of goods made during that period,  whether  or not  the whole or any portion of such turnover is liable  to tax but after deducting the amount. if any. refunded by  the dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within the prescribed period: Provided  that  in  the  case  of a  sale  by  a  person  of agricultural  or horticultural produce grown by  himself  or grown  on any land in which he has an interest,  whether  as owner,  usufructuary  mortgagee, 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, without being  subjected  to any  physical, chemical or other process for being made  fit for  consumption save mere dehusking, cleaning,  grading  or sorting." "Sale price" is defined In s. 2(o) : "  sale  price’  means the amount payable  to  a  dealer  as valuable consideration for the sale of any goods, less  any, sum  allowed  as cash discount according to  ordinary  trade practice but including any sum charged for anything done  by the  dealer  in respect of the goods at the time  or  before delivery  thereof other than the cost of  installation  when such cost is separately charged and the expression  purchase price’ shall be construed accordingly." In view of the definition of sale price all that we have  to see  is  whether the collection of sales tax by  the  dealer from   his   purchasers  can  be  considered   as   valuable consideration received by him for the sale of goods. Under  s. 4 the liability to pay tax is that of the  dealer. The  purchaser  has no liability to pay tax.   There  is  no provision in the Act from which it can be gathered that  the Act  imposes any liability on the purchaser to pay  the  tax imposed  on  the. dealer.  If the dealer passes on  his  tax burden to his purchasers he can only do it by adding the tax in  question to the price of the goods sold.  In that  event the  price  fixed for the goods including  the  tax  payable becomes  the valuable consideration given by the  purchasers for  the  goods purchased by him.  If that be  so,  the  tax collected  by the dealer from his purchasers becomes a  part of the sale 948 price  fixed, as defined in S. 2(o).  In some of  the  Sales Tax Acts power has been conferred on the dealers to pass  on the  incidence of tax to the purchasers subject  to  certain conditions.    Those  provisions  may  call  for   different consideration.  In the Act there is no such provision except S.  7-A which was introduced into the Act by Madhya  Pradesh Act 23 of 1963.  That provision would have relevance only in respect of the assessment for the year 1963-64.               Section 7-A says               "No dealer shall collect any amount, by way of               sales-tax  or purchase tax, from a person  who               sells  agricultural or  horticultural  produce               grown by himself or grown on any land in which               he   has  an  interest,  whether,  as   owner,               usufructuary  mortgagee, tenant or  otherwise,               when such produce is sold in the form in which               it  was produced, without being  subjected  to               any  physical, chemical or other  process  for               being  made  fit  for  consumption  save  mere               dehusking, cleaning, grading or sorting." In  these  appeals,  it  is not  necessary  to  examine  the relevance  of that provision.  But that provision  does  not

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give  any statutory power to collect sales tax as such  from any class of buyers.  There is no other provision in the Act which confers such a power on the dealers.  Unless the price of an article is controlled, it is always open to the  buyer and the seller to agree upon the price to be payable.  While doing  so it is open to the dealer to include in  the  price the tax payable by him to the government.  If he does so, he cannot be said to be collecting the tax payable by him  from his buyers.  The levy and collection of tax is regulated  by law  and  not  by  contract.  So long as  there  is  no  law empowering  the  dealer  to collect tax from  has  buyer  or seller,  there is no legal basis for saying that the  dealer is entitled to collect the tax payable by him from his buyer or  seller.   Whatever collection that may be  made  by  the dealer from his customers the same can only be considered as valuable consideration for the goods sold. In M/s.  George Oakes (Private) Ltd. v. The State of  Madras and Ors. (1) this Court was called upon to consider  whether a  dealer’  can  pass on his tax liability as  such  to  his customer.   In that decision while rejecting the  contention that  the  tax liability as such can be transferred  to  the buyers  this Court referred to the observations of  Lawrence J. in Paprika Ltd. and anr. v. Board of (1)  12 S.T.C. 476. 949 Trade(1)  and  Goddard  L.  J.  in  Love  v.  Norman  Wright (Builders) Ltd.(2).               In the former case Lawrence J. observed :               "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."               In Love’s case (supra) Goddard L. J. observed               "Where   an  article  is  taxed,  whether   by               purchase  tax, customs duty, or  excise  duty,               the  tax  becomes  part of  the  price  which-               ordinarily  the buyer will have to  pay.   The               price  of  an ounce of tobacco is what  it  is               because  of  the rate of tax, but  on  a  sale               there is only one consideration though made up               of cost plus profit plus tax.  So, if a seller               offers goods for sale, it is for him to  quote               a  price which includes the tax if he  desires               to  pass  it on to the buyer.   If  the  buyer               agrees  to  the price, it is not  for  him  to               consider  how  it is made up  or  whether  the               seller has included tax or not." In that decision reference was also made to the decision  of this  Court  in  Tata Iron and Steel Co. Ltd.  v.  State  of Bihar(1)  Therein  Das  C. J.  who  delivered  the  majority judgment of the Court said:               "The circumstance that the 1947 Act, after the               amendment,  permitted  the seller  who  was  a               registered dealer to collect the sales tax  as               a tax from the purchaser does not do away with               the primary liability of the seller to pay the               sales tax.  This is further made clear by  the               fact  that the registered dealer need not,  if               he so pleases or chooses, collect the tax from               the  purchaser  and  sometimes  by  reason  of               competition with ,other registered dealers  he               may  find it profitable to sell his goods  and               to  retain  his  old  customers  even  at  the

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             sacrifice  of the sales tax.  This also  makes               it clear that the sales tax need not be passed               on  to the purchasers and this fact  does  not               alter the real nature of the tax, which by the               express  provisions of the law, is  cast  upon               the  seller.  The buyer is under no  liability               to  pay  sales tax in addition to  the  agreed               sale  price unless the  contract  specifically               provides otherwise.  See Love v. Norman Wright               (Builders), Ltd."(2) (1)[1944] 1, All.  E.R. 372. (2) [1944]1 All.  E.R (3)  [1959] S. C.  R. 1355. 618 950 From  all  these  observations, it is clear  that  when  the seller passed on his tax liability to the buyer, the  amount recovered   by   dealer  is  really  part  of   the   entire consideration paid by the buyer and the distinction  between the two amounts, tax and price looses all significance. In  support  of his contention the appellant relied  on  the decision of the Madras High Court in The Deputy Commissioner of Commercial Taxes, Coimbatore v. M. Krishnaswamy  Mudaliar and  sons(1).  Therein on an interpretation of the  relevant provisions  of the Madras General Sales Tax Act,  the  court came  to the conclusion that the sales tax which the  dealer was authorised to collect from his customers was not a  part of  the  sale price received by him.   This  conclusion  was primarily  based on s. 8(B) (1) of the Madras General  Sales Tax  Act, 1939.  There is no similar provision in  the  Act. Therefore  it  is  not  necessary for  us  to  consider  the correctness of that decision. In the result these appeals fail and they are dismissed with costs.  Hearing fee one set. V. P. S.                                             Appeals dismissed. (1) 5 S.T.C. 88. 951