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PETITIONER: STATE OF WEST BENGAL

       Vs.

RESPONDENT: O.P. LODHA & ANR, M/S. CHOWRINGHEE SALES BUREAU PRIVATE LTD.

DATE OF JUDGMENT:       31/03/1997

BENCH: SUHAS C. SEN, SUJATA V. MANOHAR

ACT:

HEADNOTE:

JUDGMENT:                             With              CIVIL APPEAL NOS. 4414-14A OF 1990                       J U D G M E N T SEN, J      O. P.  Lodha and  others (hereinafter described as ‘the firm’) carry  on business  under the  trade name M/s prakash Trading Corporation.  Its place of business is at No. 161/1, M.G. Road,  Calcutta. The  business of  the firm  is to sell goods on  its own  behalf and  also on  behalf of  24  other principals on  commission agency  basis. The  Commercial Tax officer, Colootola  charge assessed  the firms the Tax under Section 6B  of the  Bengal Finance  (Sales Tax) Act. 1941 on total turnover  of the  firm comprising of sales made by the firm on its own behalf as well as on behalf of 24 principals for whom  the firm  acted  as  commission  agent.  The  firm preferred  an   appeal  to  the  Assistant  Commissioner  of Commercial Taxes who agreed with the Commercial Tax officer. The West Bengal Commercial Taxes Tribunal on further appeal, also took the same view.      On further  appeal, the  west Bengal  Taxation Tribunal came to  the conclusion  that the  assessment of the firm by including in  its turnover  sales made  by it  as commission agent of 24 other principals was erroneous in law. It was of the view that the liability of the firm and others for sales tax was  confined to  the sales  effected by  it on  its own behalf. T  he sales effected on behalf of 24 other disclosed principals  as   commission  agents   had  to   be  assessed separately.      The contention  made on  behalf of the firm which found favour with the Taxation Tribunal was that the definition of ‘dealer’ provided  by the  Bengal Finance  (Sales Tax)  Act, 1941 did  not permit  the Commercial  Tax officer  to tax  a dealer in  respect  of  sales  effected  on  behalf  of  the principals. The  attention of  the Tribunal was drawn to the definition of  ‘turnover’ in  sales tax  laws of  some other states where  goods sold  by an  agent on his own account as well as  on account  of   somebody else  have  been  brought within the  mischief of the Act by specific words. Reference was made  to the case of Ramaswamy Gounder and Sons V. State of  Madras,   32  STC  350.  There,  in  the  definition  of

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‘turnover’ provided by the Tamil Nadu General Sales Tax Act, turnover included  sales effected  by a  dealer directly  or through another ’on his on account or on account of others." These words,  according to  the Tribunal  were  crucial  for determination of  the liability  of a  dealer in cases where sales were  effected on behalf of a disclosed principal’. It was contended  that unless  there were specific words to the contrary, the  liability  of the dealer would be the same as that of  the principle  . The agent could not be made liable for any  amount of  tax for  which  the  principal  was  not liable. Aggregation  of sales effected by a dealer on behalf of as  many as  24 principals  led to imposition of a higher rate of  duty. If  the principals  were separately assessed, they would  have paid  a much  lower  rate  of  duty  .  The liability  of  agent  was  co-extensive  with  that  of  the principal .  if a  dealer sells  any goods  on behalf of the disclosed principal,  the sales Tax Officer has an option to tax the principal or levy tax on the dealer on behalf of the principal. The liability of the dealer, however, will be the same as  that of  the Principal. There is nothing in the Act which permits  the sales  Tax officer  to add  together  the sales made on behalf of as many as 24 principals so that the turnover becomes  larger and the rate of tax becomes higher. There was  no way  the dealer  could recover this larger tax from its principals.      We are unable to uphold this contention for a number of reasons.      Agents  of   all  types   have  been  included  in  the definition  of   ‘dealer’.  the   clear  intention   of  the legislature is  to levy tax on an agent even when such agent is selling  goods on  behalf of  disclosed principals. There has to be only one assessment on the agent in respect of his total turnover.  No exception or exemption has been provided by the  Bengal Finance  (sales Tax)  Act for sales made by a dealer as  an agent.  Section 2(c)  of  the  bengal  Finance (sales Tax) Act defines "dealer" as under:      "dealer"  means   any  person   who      carries on  the business of selling      goods  in   west   Bengal   or   of      purchasing goods  in West bengal in      specified  circumstances   or   any      person making  a sale under Section      6D and includes-      the Central  or a state Government,      a  local   authority,  a  statutory      body,  a   trust  or   other   body      corporate which, or a liquidator or      receiver appointed  by a  Court  in      respect of  a person  defined as  a      dealer  under   this  clause   who,      whether or  not in  the  course  of      business   sells,    supplies    or      distributes directly; or otherwise,      for cash or for deferred payment or      for  commission,   remuneration  or      other valuable consideration.      Explanation  1.-   A   Co-operative      society   or    a   club   or   any      association which  sells  goods  to      its members is a dealer.      Explanation 2.- A factor, a broker,      a commission  agent, a  del credere      agent, an  auctioneer, an agent for      handling or  transporting of  goods      or handling of document of title to

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    goods  or   any  other   mercantile      agent, by whatever name called, and      whether of  the same description as      hereinbefore mentioned  or not, who      carries on  the business of selling      goods and who has, in the customary      course of  business,  authority  to      sell goods  belonging to principals      is a dealer."      Section 2(h) defines ": sale-price"      as follows:      "sale-price   means    the   amount      payable to  a  dealer  as  valuable      consideration for-      (i)  the   sale,  other  than  that      referred to  in section  6D 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 of, or before, delivery      thereof ,  other than  the cost  of      freight or  delivery or the cost of      installation or  interest when such      cost  or   interest  is  separately      charged;"      Section  2(g)   defines  "sale"  as      follows:      "sale"  means   any   transfer   of      property  in   goods  for  cash  or      deferred payment  or other valuable      consideration, and includes-      (i) any  delivery of goods on hire-      purchase or  any system  of payment      by instalments.      (ii) any  transfer of  the right to      use  any   goods  for  any  purpose      (whether  or  not  for    specified      period) for  cash, deferred payment      or other valuable consideration,      (iii) any  supply, by  way of or as      part of any service or in any other      manner whatsoever,  of goods, being      food or any other article for human      consumption or  any drink  (whether      or not  intoxicating),  where  such      supply  or  service  is  for  cash,      deferred payment  or other valuable      consideration or      (iv) any  supply of  goods  by  any      unincorporated association  or body      of persons  to members  thereof for      cash, deferred   payment  or  other      valuable consideration,      and  such   delivery,  transfer  or      supply of any goods shall be deemed      to be  a sale  of the  goods by the      person   making    the    delivery,      transfer or  supply and  a purchase      of those  goods by  the  person  to      whom  such  delivery,  transfer  or      supply  is   made,  but   does  not      include a  mortgage, hypothecation,      charge or pledge."

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    "Turnover"  has   been  defined  by      Section 2(i) as under:      "turnover" used  in relation to any      period means  the aggregate  of the      sale-prices or parts of sale-prices      receivable,  or   if  a  dealer  so      elects, actually  received  by  the      dealer  during  such  period  after      deducting the amounts, if any,-      (i)  refunded   by  the  dealer  in      respect of  any goods  returned  by      the purchaser within such period or      (ii) separately charged as turnover      tax payable under section 6B during      such period;      Provided further  that where before      or after  the date  of  the  coming      into force of clause (f) of section      2 of  Bengal  Finance  (Sales  Tax)      (West Bengal  Amendment) Act, 1950,      the calculation of the turnover for      any period  prior to  such date was      or is  made on  the  basis  of  the      sale-prices or parts of sale-prices      receivable during  such period, the      calculation shall  not be called in      question merely  on the ground that      it was or is so made; and no return      furnished ,  no assessment made, no      proceedings      (including      in      particular  proceedings    for  the      recovery of  any tax  or penalty  )      taken,  no   order  passed  and  no      notice  issued  whether  before  or      after such  date shall be called in      question on  the ground that it was      or  is   based   on   turnover   so      calculated;"      Section   6B which  is the charging      section read under:      "6B.  Liability   to   payment   of      turnover tax  and rate  thereof-(1)      Notwithstanding anything  contained      elsewhere in this Act,-      (a) every  dealer, whose  aggregate      of the  gross turnover  under  this      Act and  the gross  turnover  under      the West Bengal Sales Tax Act, 1954      during the  last year  ending on or      before the  31st day  of May, 1987,      exceeds rupees  twenty-five  lakhs,      shall  in   addition  to   the  tax      payable by  him under section 5 and      section 6D if any, be liable to pay      from the  1st day of June, of 1987,      a  turnover     tax   at  the  rate      specified  in  sub-section  (3)  of      such  part   of  his   turnover  as      specified in sub-section (2);      (b) every  dealer, other than those      referred to  in clause  (a) , whose      aggregate  of  the  gross  turnover      under  this   Act  and   the  gross      turnover under  this  Act  and  the      gross  turnover   under  the   West

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    Bengal   Sales    Tax   Act,   1954      calculated from the commencement of      any year  ending on  or  after  the      11th day  of April.,  1994, exceeds      twenty -  five lakh  rupees at  any      time within  such  year  shall,  in      addition to  the tax payable by him      under section  5 and section 6D, if      any, be  liable to pay, with effect      from the date immediately following      the   day on  which such  aggregate      first  exceeds   twenty-five   lakh      rupees or  from  the  11th  day  of      April, 1994  , whichever is later ,      a  turnover   tax   at   the   rate      specified in sub-section(3) of such      part of  his turnover  as specified      in sub-section (2) - (c)          x      x         x         X         X      It will  appear from the wide definition of dealer that a  person   who  sells  goods  on  behalf  of  disclosed  or undisclosed principals  has been  treated  as  ‘dealer’  the extended definition  given to a dealer which includes, inter alia, a  commission agent,  del credre  agent and auctioneer goes to  show that  the agents  who sell  goods for  and  on behalf of others for a commission will have to be treated as dealers and  are liable to be assessed as such under Section 6B of  Bengal Finance(Sales Tax) Act. The charge of turnover tax  has  been  imposed  upon  "every  dealer"  whose  gross turnover is  in excess  of a  specified amount  specified in Section  6B.  "sale-price"  has  been  defined  as  valuable consideration for  the sale  of any  goods including any sum charged for  anything done  by the  dealer in respect of the goods at the time of or a before delivery thereof.      The incidence of taxation under Section 4 of the Bengal Finance (sales  Tax) Act  is on the gross turnover in excess of the  taxable quantum  has   to be fixed by a notification issued in  the official  Gazette. Taxable  quantum has  been defined in Sub-section (5) of section 4 to mean :      (a) in  relation to  a  dealer  who      imports for  sale  any  goods  into      West Bengal-Rs. 20,000/-,      (b) in  relation to  any dealer who      manufactures or produces any; goods      other than  cooked foods, for sale-      Rs.50,000/-      (c) in  relation to  any dealer who      manufactures  or   produces  cooked      foods for sale, Rs.1,00,000/-      (d)  in   relation  to   any  other      dealer-Rs. 2,00,000/-      ‘Taxable turnover’  has been defined by section 5(2) as under:      "5(2). in  this Act, the Expression      "taxable  turnover"  means  in  the      case of  a dealer  who is liable to      pay tax  under section  4 or  under      sub-section (3)  of Section 8, that      part of  his gross  turnover during      any  period   which  remains  after      deducting therefrom-      (a) his turnover during that period      on-      (i) the  sale of  goods    declared      tax-free under section 6;

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    (ii) sales  to a  registered dealer      of goods other than iron and steel,      rice  and  wheat,  referred  to  in      section 14 of the Central Sales Tax      Act, 1956(74  of 1956) specified in      the certificate  of registration of      such dealer  as being  intended for      re-sale, other  than that by way of      sale referred  to in sub-clause(ii)      of clause  (g) of  section 2  or in      section 6D,  by him in West Bengal,      and   of   containers   and   other      materials for  the  packing of such      specified goods;      (iii) Omitted.      (iv) Omitted.      (v) sale  of goods  which are shown      to   the    satisfaction   of   the      Commissioner  naot  to  have  taken      place in  West Bengal,  or to  have      taken place in the course of inter-      state trade or commerce, within the      meaning of section 3 of the Central      Sales Tax  Act, 1956  (74 of 1956),      or in  the course  of import of the      goods into,  or export of the goods      out of,  the  territory  of  India,      within the meaning of section 5  of      that Act;      (va) sales  of goods  specified  in      section 14  of the   central  Sales      Tax Act,  1956 (74  of 1956),  on a      prior sale  whereof in  West Bengal      due   tax    is   shown    to   the      satisfaction of the Commissioner to      have been paid;"      it  is   not  necessary   to  enumerate  various  other deductions which  are permissible  under sub-clauses (vb) to (vd) and also sub-clause (vi) of section 5(2) of the Act.      It is  of significance  to note  that an agent who is a dealer is  not entitled  to any  deduction on account of the sales made  by him  for and  on behalf  of the principal. In fact, there  is no  sense in  treating the  agent on the one hand as  a dealer  for the  purpose of levying  sales tax on its taxable turnover and exclude from his turnover the sales made for  and on  behalf of  others on the other  hand . The mere fact  that the  agent is being  treated as a dealer for imposition of sales tax precludes the argument that the real liability to  pay the  tax is  on the  principal for  and on whose account  the goods  are sold by the agent. The Act has made agent  directly liable  to pay sales tax on his taxable turnover. There is no provision in the Act which permits the Commercial Tax  Officer to look beyond the sales effected by the agent  and find  out for  and on  whose behalf the sales have been  effected. Section 6B merely provides for levy; of an additional  amount of tax on ’dealers’ whose aggregate of the gross  turnover under  the Bengal  Finance ( Sales Tax ) Act and   the  West Bengal  Sales Tax  Act  taking  together exceed RS.  25  lakhs. If the dealer happens to be an agent, he will  have to  pay this tax on his gross turnover because the statute  treats him  as   dealer in respect of the sales effected by him. In fact, the argument that the liability of the dealer  must be  determined by  excluding the sales made for or on account of somebody else will nullify the charging section which levies tax on the agent himself.

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    It is  true that  unlike some  other  state  Acts,  the Bengal Finance  (Sales Tax)  Act has  not defined ‘turnover’ specifically to  include sales  made by  a dealer whether on his own  account or on account of somebody else. That, in my judgment, does  nota made  any difference. if a person sells goods on  his own  account, he is liable not as an agent but as seller.  But when  he sells on behalf of somebody else or on account  of somebody  else, then he sells the goods as an agent of the principal. Such agents have been made liable to pay tax   by the enlarged definition of the word ‘dealer’ in the Act.  If  the  sales  effected  by  the  dealer  exceeds "taxable quantum"  or the   total  sales exceeds the taxable turnover, he  will be  liable to  pay tax under Section 4 or Section 6B  of the  Bengal Finance  (Sales Tax) Act. Whether such persons  sell goods  on his  own behalf or on behalf of somebody else is quite immaterial for this purpose.      In my  judgment, the  scheme of  the Act leaves no room for doubt  that an  agent  who  sells  goods  on  behalf  of somebody else  cannot excape  the liability to pay sales tax on the  sales made by him for and on behalf of others merely because, he  was selling  goods on  behalf  of  others.  The charge under  Section 6B  has been imposed directly upon him by the broad definition of ‘dealer’.      On behalf  of the  respondents, reliance  was placed on H.Veerabhadrappa v. Commissioner of Commercial Taxes, 24 STC 919 and  Gudathur Bhemappa  V. Commercial  Taxes 47  STC 121 which were  noted in  the judgment  of the  Tribunal.  These decisions of  the High  Courts were  based on  the principle that the  liability of  the commission  agent in  respect of business carried  on by  him on  behalf of the principal was only in  his character  as agent and the turnover brought to tax in  such a  case was  the turnover of the principal  and not the  turnover   of the agent himself. If the turnover of the  principal   did  not  exceed  the  taxable  limit,  the Commercial Tax  officer could not aggregate the transactions of the  several known  principals and  then made  the  agent liable for payment of the additional tax.      We are  of the  view that  this approach is erroneous . The liability  of the  agent to  pay sales  tax on the sales made by  him has  to be  found out  from the  Sales Tax  Act itself and not on any general principle of agency. The agent has been  made liable  to pay turnover tax by the provisions of section  6B read  with Section  2(c)  of  Bengal  Finance (sales Tax)  Act. This  liability to  pay tax is his own. so far as  the Act  is concerned  the agent is the assessee. He may have  his claims  against the  principals arising out of the agency  agreement. But  it is  something between him and his principals.  So far  as the  sales Tax Act is concerned, tax has  been levied  directly on the agent on his turnover. it is  not possible  to uphold  the  argument  that  agent’s liability is  limited only  to the extent that his principal was liable  and that  in order  to find out the liability of the agent,  it has  to be  found out  what  exactly  is  the liability of each of his principals. This  argument has been specifically negatived by this Court in the case of Cardamom Planters Association,  Bodinayakanur v.  Deputy Commissioner of Sales  Tax(law), Board  of Revenue(Taxes)  Ernakulam 1989 (3) SCR 719. That was a case of society of which the members were cardamom  growers in  the state of Kerala. The  Society carried on  the business  as an  auctioneer under  a licence issued to  it under  the Cardamom Act read with the Cardamom (Licensing and  marketing) Rules,  1977. The mode of selling cardamom was  that the  planters left their produce with the society and the Society after mixing the produce  of all the planters put  the same  to  auction.  The  Society  used  to

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collect one  per cent as commission out of the sale proceeds from each  of the  planters. Besides  cardamom, the  society also sold goods on their own.      The question  in that  case was how far was the Society liable to  pay the  surcharge under the kerala General Sales Tax Act,  1963. The  Kerala Act  imposed sales  tax on every dealer whose  total turnover  in a year exceeded a specified sum which  varied from  year to  year. In  1957, the  Kerala Legislature introduced a surcharge on sales tax payable by a dealer whose  turnover exceeded  Rs.  30,000/-  a  year.  An important feature  of this  surcharge was  that unlike sales tax, the  seller could  not  pass  on  the  burden  of  this surcharge to the consumers and had to bear it himself.      The Society’s  contention was that it sold goods in its capacity as  commission agent  for various principals and on the general principal of agency, an agent would be liable to surcharge only  to the  same extent as the principal whom he represented. Therefore, his liability could not be more than the liability of his principal. It was, therefore, contended that the  Society could not be made liable for any surcharge in respected  of the  sales effected  by it on behalf of the principals whose  sales to  the Society  did not  exceed the limits set  out in  Section 3(1)  of the  Surcharge Act. The principals could  not be  made liable  to surcharge  if they were assessed individually. The sales made by the Society on behalf of  the disclosed  principals could  not  be  clubbed together and subjected to one assessment.      This  argument  was  rejected  by  this  Court  on  two grounds. The first was that the commission agent fell within the ambit  of the  definition of "dealer" in the  Kerala Act and made  its turnover  liable  to  tax.  The  Act  did  not contemplate   any   dissection   of   this   turnover   into transactions on behalf of various principals by reference to their individual liabilities to pay such taxes.      The other  ground was that the statutory interpretation apart, if  the  contention  of  the  asessee  that  separate assessment must  be made  on the sales effected on behalf of each of  the principals,  is accepted,  it will make the Act unworkable. A  commission agent will be dealing on behalf of hundreds of Constituents and each of his constituents may be dealing not  only through him but also through several other agents.  The   transactions  may  not  be  confined  to  the territories of  one State  and may be spread over the entire Indian sub-continent. The sales through different agents may be  of  different  goods  attracting  liability  to  tax  at different rates.  it may  be that  a principal  whose  sales through one commission agent may not come upto the limits of turnover for  levy of tax or surcharge may have been dealing through other  agents and,  if assessed directly, may have a turnover exceeding  those limits.  In this state of affairs, it will be absolutely; impracticable, if not impossible, for a Sales  Tax officer having jurisdiction over one particular commission agent  to make  his sales  tax assessment  on the basis suggested  by the  assessee. That  would  require  the collection data,  in  the  assessment  of  every  commission agent, regarding  the entire  sales turnover  of each of his constituents who  may or may nota be assessed by the officer assessing the  particular commission  agent. The  assessment order on  the commission  agent would  then have to be split up, as  it were,  into a  number parts  each containing  the determination require  exercises which cannot be practically undertaken by  an officer  assessing a  commission agent but can easily be undertaken by the different officers assessing the principals.  That is  why the  statute  evolved  a  very simple procedure  to meet  the  situation.  It  brought  the

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commission agent  within the definition of a dealer and made his aggregate  turnover liable  to   tax. But it provided at the same  time that  turnover so  included and  taxed in the hands of  the agent  should be excluded from the turnover of the principal, where he is separately assessed.      We are  of the view that basically, the West Bengal Act is on  similar lines as the Kerala Act. An agent as a dealer has been  made directly  liable to  pay sales  tax for  good reasons. The Act has not provided for splitting of the sales made by the dealer for and on behalf of different principals and make separate assessment on the dealer . It is the total turnover of  the dealer.  It is  the total  turnover of  the dealer which  has been  brought to tax under the Act. In the making the  assessment of  the dealer,  the  Commercial  Tax officer does  not have  to find   out  what  was  the  exact quantum of  sales effected  on behalf  of each principal and what was  the liability,  if any,  of  that  principal.  The liability to  pay tax imposed by Section 6B is on the dealer himself and  not on  the principal  through the  dealer. For computing his  liability, the taxable turnover of the dealer has to be found out.      The Taxation  Tribunal has  attached great significance to the  definition of "turnover" given in the Bengal Finance (Sales Tax)  Act, and pointed out that unlike the Tamil Nadu General Sales  Tax Act,  1959, the Bengal Act did not define ‘turnover’ to  mean the aggregate amount for which the goods were bought  and sold  by a  dealer on his own account or on account of  others, In  our judgment,  the absence  of these words does  not made  any difference in the case of a dealer who is an agent. The agent has been made liable to pay sales tax. The agent may sell goods on account of others. But that will not absolve the agent from the liability to pay tax  on such sales.  Otherwise, the  imposition of tax by Section 6B on an agent who is a dealer will become meaningless.      We are  of the  view that the Taxation Tribunal clearly fell into  error in   holding  that  the  aggregate  of  the turnover of  the principals cannot be computed for assessing the agent  fora turnover  tax under Section 6B. The judgment and order  dated 20.9.1989 of the Tribunal is set aside. the appeal is allowed with no order as to costs. C.A Nos. 4414-14A of 1990      In view  of our  decision in C.A. No. 1374 of 1990, the judgment  and  order  dated  4.1.1990  of  the  West  Bengal Taxation Tribunal  is also  set aside  and the above appeals are allowed with no order as to costs.