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PETITIONER: JOINT COMMERCIAL OFFICER, DIVISION II,MADRAS-2 ETC.

       Vs.

RESPONDENT: SPENCER & CO.  ETC.  ETC.

DATE OF JUDGMENT02/05/1975

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. KRISHNAIYER, V.R. SARKARIA, RANJIT SINGH

CITATION:  1975 AIR 1801            1975 SCR  439  1975 SCC  (2) 358  CITATOR INFO :  R          1981 SC 440  (13,14)  D          1987 SC 611  (12)

ACT: Madras General Sales Tax Act, 1959, Sections 2(q), 2(r)  and 3(1)--an Dealer in foreign liquor and other goods--Tax  paid under  s. 21-A of Madras Prohibition Act, 1937 by  purchaser if part of taxable turnover of the dealer.

HEADNOTE: The  respondents-assessees  are dealers in  foreign  liquor, among other goods.  They have been assessed to sales tax  as dealers  on sales or purchases of other goods under s.  3(1) of the Madras General Sales Tax Act, 1959.  They filed  Writ Petitions  in  the  High Court  challenging  certain  orders (relating  to different assessment years, ranging from  1959 to 1964-65) made by the assessing authority under the Madras General  Sales  Tax Act, 1959 proposing to  redetermine  the taxable  turnover of the respondents by including the  sale- price  of foreign liquor which, it was alleged, had  escaped assessment.    The  High  Court  directed  the   sales   tax authorities  not to include in the assessable  turnover  the tax  paid  by the respondents under s. 21-A  of  the  Madras Prohibition Act, 1937.  These appeals have been filed on the basis  of  the certificate of fitness granted  by  the  High Court. It  was  contended  for  the  appellants  that  the   amount collected  by  the assessees by was of sales  tax  from  the purchasers  were  part of their total turnover and  as  much liable to be taxed under s. 3(1) of the Act. Rejecting the contention and dismissing the appeals, HELD  : It is clear from s. 21-A of the  Madras  Prohibition Act, 1937 that the sales tax which the section requires  the seller of Foreign liquor to collect from the purchaser is  a tax on the purchaser and not on the seller.  It is a tax  on the  price of the liquor and that tax is to be paid  by  the purchaser.  Section 21-A makes the seller a collector of tax for  the Government, and the amount collected by him as  tax under  this  section  cannot  therefore be  a  part  of  his turnover.  Under the Madras General Sales Tax Act, 1959  the dealer has a statutory duty to collect the sales tax payable

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by  him from big customer, and when the dealer passes on  to the customer the amount of tax which the former is liable to pay, the said amount does not cease to be the price for  the goods  although "the price is expressed as X  plus  purchase tax".  But the amounts collected by the assessees  concerned in  these appeals under a statutory obligation cannot  be  a part of their taxable turnover under the Act. [442A-D]. M/s.   George Oakes (P) Ltd., V. State of Madras,  [1962]  2 S.C.R.  57Q,  State at Kerala v. Ramaswamy  Iyer  and  Sons, [1966] Suppl.  S.C.R. 582 and Delhi Cloth and General  Mills Ltd.  v.  Commissioner of Sales Tax, Indore,  [1971]  Suppl. S.C.R. 945, held not applicable. Paprica Ltd. and Anr. v. Board of Trade, [1944] 1 All.  E.R. 372, referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  2005  to 2016 of 1970. From  the Judgment and Order dated the 10th April,  1969  of the Madras High Court in W.Ps. Nos. 2787 to 2790 of 1966 and 2988 to 2991 of 1966 and T.C. Nos. 102, 104 & 195 of 1967. 10 SC/75-29 440 S.   Govind Swaminathan, K. Venkataswami, N. S. Sivam, A. V. Rangam    and A. Subhashini, for the appellants. T.   A.  Ramchandran,  for the respondents  (In  C.As.  Nos. 2005-2008 & 2013-2016/70). Vineet Kumar, for respondent No. 1 (In C.A. Nos.  2009-2012/ 70). The Judgment of the Court was delivered by GUPTA,  J.-These  twelve  appeals  arise  out  of  a  common judgment  of  the Madras High Court disposing  of  the  writ petitions filed by the respondents in which they  challenged certain  orders of the assessing authority under the  Madras General  Sales  Tax Act, 1959 proposing to  redetermine  the taxable  turnover of the respondents by including the  sale- price  of foreign liquor which, it was alleged, had  escaped assessment.    The  High  Court  directed  the   sales   tax authorities  not to include in the assessable  turnover  the tax  paid by the respondents under sec. 21-A of  the  Madras Prohibition  Act,  1937.   In  these  appeals,  brought   on certificate of fitness, the correctness of the High  Court’s decision  is questioned by the sales tax  authorities.   The appeals  have three different assessees as  respondents  and relate   to  different  assessment  years  concerning   each assessee, ranging from 1959-60 to 1964-65. The  assessees  are dealers in foreign liquor,  among  other goods.   They have been assessed to sales tax as dealers  on sales  or  purchases of other goods under sec. 3(1)  of  the Madras  General  Sales  Tax Act, 1959.   Sec.  3(1)  is  the charging  section  providing generally that a  dealer  whose total  turnover  for a year is not less than  the  specified amount, shall pay a tax for each year at the specified rate. ’Turnover’ is defined in sec. 2(r) of the Act.  The relevant part of the definition is as follows :               "’turnover’  means  the aggregate  amount  for               which goods are bought or sold, or supplied or               distributed,  by a dealer, either directly  or               through  another,  on his own  account  or  on               account  of  others whether for  cash  or  for               deferred    payment    or    other    valuable               consideration............ Total  turnover’ is defined in sec. 2(q) of the Act as  "the

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aggregate turnover in all goods of a dealer at all places of business  in  the  State, whether or not the  whole  or  any portion of such turnover is liable to tax".  The question is whether  the ’sales tax’ collected by these assessees  under sec. 21-A of the Madras Prohibition Act, 1937 can be treated as part of their total turnover.  Sec. 21-A, so far as it is relevant for the present purpose, is in these terms :               "Every  person  or  institution  which   sells               foreign liquor-     (a)    x    x    x                (b)  x    x    x               shall collect from the purchaser and pay  over               to  the  Government at such intervals  and  in               such manner as may be pres-               441               cribed, a sales tax calculated at the rate  of               eight  annas  in the rupee, or at  such  other               rate as may be notified by the Government from               time  to time, on the price of the  liquor  so               sold." Counsel  for  the appellants contended  relying  on  several decisions  of this Court to which we shall presently  refer, that  the amount collected by the assessees by way of  sales tax  from the purchasers were part of their  total  turnover and as such liable to be taxed under sec. 3(1) of the Madras General Sales Tax Act, 1959.  In M/s.  George Oakes (P) Ltd. v. State of Madras,(1) this.  Court considered the  question whether inclusion of the amounts collected by the appellants in that case as sales tax under the Madras General Sales Tax Act, 1939 was valid.  The expression ’turnover’ in the  1939 Act meant, as it does in the 1959 Act, aggregate amount  for which  goods  are bought or sold, whether for  cash  or  for deferred  payment  or other  valuable  consideration.   This Court observed :               ".........  when a sale attracts purchase  tax               and the tax is passed on to the consumer, what               the  buyer has to pay for the  goods  includes               the  tax as well and the aggregate  amount  so               paid  would  fall  within  the  definition  of               turnover  ......  so far as the  purchaser  is               concerned,  he  pays for the  goods  what  the                             seller demands, viz., price even thoug h it  may               include tax.  That is the whole  consideration               for  the sale and there is no reason  why  the               whole  amount  paid  to  the  seller  by   the               purchaser   should  not  be  treated  as   the               consideration for the sale and included in the               turnover." A similar view was taken by this Court in State of Kerala v. Ramaswamy  Iyer  &  Sons.(2)  This  was  a  case  under  the Travancore  Cochin General Sales Tax Act, 1958.   Here  also the decision turned on the definition of ’turnover’ which is similar to the definition of the term in the Madras  General Sales Tax Act, 1959.  The position was further explained  in Delhi Cloth and General Mills Ltd. v. Commissioner of  Sales Tax,  Indore,(3) which was a case under the  Madhya  Pradesh General  Sales  Tax Act, 1958.  The relevant  provisions  of this Act appear to be similar to those of the Madras General Sales Tax Act, 1959.  Stating that the liability to pay  tax under  the Act is that of the dealer, Hegde J. speaking  for the  Court said that the Act did not confer  "any  statutory power  on the dealer to collect sales tax as such  from  any class  of  buyers. . . . Unless the price of an  article  is con- trolled,. it is always open to the buyer and the seller

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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 his buyer or seller, there is  no legal basis for (1)  [1962] 2 S.C.R. 570. (2)  [1966] 3 S.C.R. 582. (1)  [1971] Supp.  S.C.R. 945. 442 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 same  can only be considered as valuable  consideration  for the goods sold". It  is clear from sec. 21-A of the Madras  Prohibition  Act, 1937  that  the  sales tax which the  section  requires  the seller of foreign liquor to collect from the purchaser is  a tax  on the purchaser and not on the seller.  This  is  what makes  the authorities on which counsel for  the  appellants relied inapplicable to the cases before us.  Under sec. 21-A the  tax payable is on the price of the liquor and that  tax is  to be paid by the purchaser, the seller is  required  to collect the tax from the purchaser which he has to pay  over to  the Government.  Sec. 21-A makes the seller a  collector of  tax for the Government, and the amount collected by  him as tax under this section cannot therefore be a part of  his turnover.  Under the Madras General Sales Tax Act, 1959  the dealer  has  no  statutory duty to  collect  the  sales  tax payable by him from his customer, and when the dealer passes on  to  the customer the amount of tax which the  former  is liable  to  pay, the said amount does not cease  to  be  the price  for the goods although "the price is expressed, as  X plus  purchase  tax".(1) But the amounts  collected  by  the assessees  concerned  in  these appeals  under  a  statutory obligation cannot be a part of their taxable turnover  under the Madras General Sales Tax Act, 1959. The appeals are dismissed with- costs : one hearing fee. Appeals dismissed. V.M.K. aprica Ltd. and Anr. v. Board of Trade, [1944] 1 All.   E.R. 372. 443