http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: STATES OF ORISSA

       Vs.

RESPONDENT: M/ S. UTKAL DISTRIBUTORS (P) LTD.

DATE OF JUDGMENT: 13/12/1965

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1966 AIR 1170            1966 SCR  (3)  55  CITATOR INFO :  RF         1991 SC 672  (6)

ACT: Orissa  Sales  Tax Act, 1946-Ss. 2(h), 2(i)  and  5(2)-State price’  and  ’Turnover’-Whether includes  Central  Sales-tax collected  on  sales of iron and steel goods  by  controlled stock-holder-Iron  and Steel Control Order, 1956 and Iron  & Steel (Control) Notification dt.  Oct. 18, 1958--Effect of.

HEADNOTE: In  the course of assessment to sales tax for the  last  two quarters of 1957 under the Orissa Sales Tax Act, 1947 on the sales of iron and steel goods, the assessee company  claimed a   deduction   from  its  gross  turnover  of   an   amount representing   central  sales-tax  collected  by   it   from purchases and paid over to the central sales-tax  authority. This  claim was disallowed by the Sales Tax Officer and  the Collector of Sales-tax confirmed this decision.  However, on appeal, the Sales Tax Tribunal held that the central  sales- tax realised by the assessee from its customers was not part of  the price charged by it and, therefore, it did not  fall within   the  definitions  of  "sale  price"  and   "taxable turnover’  in  the Act.  In coming to  its  conclusion,  the Tribunal  relied  upon the fact (i) that the assesse  was  a controlled  stock-holder  under the Iron and  Steel  Control Order,  1956, and was not, therefore, entitled to  charge  a price higher than that fixed by the Government of India; and (ii)  that  by virtue of Condition No. 4(ii) of the  Iron  & Steel  (Control)  Notification  dated  Oct.  18,  1958   the customer was required to pay the controlled stock-holder the central  sales tax incurred by the latter in  obtaining  the material  and on the sale to the customer.  The High  Court, upon  a reference, agreed with the Tribunal.  On  appeal  to this Court, HELD:     In  view  of  the fact that the  price  which  the stock-holder  was entitled to charge was  statutorily  fixed and the stock-holder was not entitled to and did not  charge more, the central sales-tax paid under the provisions of the Iron  and Steel (Control) Notification did not form part  of the sale price paid by the customer to the assessee. [60  D- E]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

The   Deputy   Commissioner  of  Commercial  Taxes   v.   M. Krishnaswami Mudaliar & Sons, 5 S.T.C. 88 and Bata Shoe  Co. Ltd. v. Member, Board of Revenue, West Bengal referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 64 and  65 of 1965. Appeals by special leave from the judgment and order,  dated April  12,  1963  of  the  Orissa  High  Court  in   Special jurisdiction Casa Nos. 38 and 39 of 1962. O. P. Malhotra and R. N. Sachthey, for the appellant. The respondent did not appear. The Judgment of the Court was delivered by Sikri,  J.  These  appeals by special  leave  are  directed against the judgment of the Orissa High Court in a reference made to it 56 under  S.  24(1) of the, Orissa Sales Tax  Act,  1947.   The following questions were referred :               "1. Whether in the facts and circumstances  of               the  case,  the Tribunal is right  in  holding               that  the  Central  Sales  Tax  paid  by   the               opposite  party  at  its  purchase  point  and               charged  on to its customers does not  form  a               part  of the sale-price of the commodity  sold               so as to be taxable under the Orissa Sales Tax               Act, 1947.               2.    Whether,     in    the    ’facts     and               circumstances,  the allowance of the claim               of  the  opposite  party  for deduction   of               Central Sales Tax collected from its customers               is  permissible  under the provisions  of  the               Orissa  Sales  Tax Act and  the  rules  framed               thereunder."               Before we examine the facts and  circumstances               of  the case, it is convenient to set out  the               relevant  provisions of the Orissa  Sales  Tax               Act,  1947 (hereinafter called the Act) as  it               stood  prior to the amendments made  in  1958.               In the Act, the definition of the  expressions               "sale  price" and "turnover" in ss.  2(h)  and               2(i)  (omitting immaterial portions)  were  as               follows :               "2(h)-’sale price’ means the amount payable to               a dealer as valuable consideration for-               (i)   the  sale or supply 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  when  such  cost  is  separately               charged;....               2(i)-’Turnover means the aggregate of the sale               prices and tax, if any, received or receivable               by a dealer, in respect of the sale or  supply               of  goods  or  carrying out  of  any  contract               effected or made during a given period.’               "Taxable  turnover" was defined in s. 5(2)  of               the Act as follows               "5  (2) In this Act, the  expression  "taxable               turnover" means that part of a dealer’s  gross

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

             turnover during any period which remains after               deducting therefrom-               (b)   the  tax, if any, paid by the  purchaser               to the dealer".                              57 These  appeals  are concerned with the assessments  for  the quarter  ending  September  30, 1957, and  for  the  quarter ending  December  31, 1957, but it would  be  sufficient  if facts  relating  to the assessment for  the  quarter  ending September  30, 1957, are given, because apart  from  figures there  is  no  difference in the relevant  facts.   For  the quarter ending September 30, 1957, the respondent, M/s Utkal Distributors  (P)  Ltd.,  hereinafter  referred  to  as  the assessee, claimed to deduct from its gross turnover the  sum of  Rs. 3,874.49 on the ground that it had paid this sum  on the  purchases made by it as central sales tax.   The  Sales Tax Officer disallowed the claim.  On appeal, the  Collector of  Sales, Tax, Orissa, affirmed the order of the Sales  Tax Officer.  The, Sales Tax Tribunal, Orissa, in second appeal, however,   came  to  the  conclusion  that  there   was   no justification  to  disallow  the deduction  claimed  by  the appellant.   The  Tribunal held that the central  sales  tax realised by the assessee from its customers was not part  of the  price  charged by it, and, therefore, it did  not  fall within   the  definitions  of  ’sale  price’  and   ’taxable turnover’.   The  Tribunal  relied  on  the  fact  that  the assessee  was a controlled stock holder under the  Iron  and Steel  (Control)  Notification,  dated  Calcutta,  the  18th October, 1958, and by virtue of condition No. 4(ii) of’  the Notification,  the  central sales tax paid by  the  customer was, not part of the price.  Condition No. 4(ii) was to this effect               "The  customer  shall pay  to  the  Controlled               Stock holder the Central Sales Tax incurred by               the  Controlled Stockholder in  obtaining  the               material and also, pay such additional Central               Sales Tax, if any, incurred on the sale to the               Customer." This  Notification  was  issued under  the  Iron  and  Steel Control  Order, 1956, which order was passed in exercise  of the  powers conferred by s. 3 of the  Essential  Commodities Act,   1955.   Section  2  of  the  Control  Order   defined "Controlled Stockholder" as "a stock holder appointed by the Controller to hold stocks of iron or steel under such  terms and  conditions as he may prescribe from time to  time."  It further appears that under the Iron and Steel Control Order, read  with  the  Iron and Steel  (Control)  Notification,  a controlled  stock-holder was not entitled to charge a  price higher  than  that  fixed by the Government  of  India.   As stated  earlier, in view of these provisions,  the  Tribunal came  to  the  conclusion that central  sales  tax  paid  or realised  by the assessee from the customers at the time  of sale of iron and steel goods to them could not be treated as sale price of goods and could not be included in the taxable turnover.   The  Commissioner  of  Sales  Tax  being  L9Sup. C1166-5 5 8 dissatisfied  with the order of the Tribunal sought a  refer ence  to the High Court and the Tribunal referred  the  case under  s. 24(1) of the Act, formulating two questions  which have already been set out. The  High Court answered the questions in  the  affirmative. Before  the High Court the counsel for the State urged  that the   expression  "tax"  occurring  in  the  definition   of "turnover"  in  s. 2(i) and in the  definition  of  "taxable

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

turnover’  in  s. 5 (2) (b) referred only to the  sales  tax paid under the Orissa Sales Tax Act and not to the tax  paid under  the Central Sales Tax Act, and that this was part  of the consideration, and, therefore, the assessee was bound to include  the  central  sales tax in  the  taxable  turnover. Following The Deputy Commissioner of Commercial Taxes v.  M. KrishnasKami  Mudaliar & Sons(1) and Bata Shoe Co.  Ltd.  v. Member,  hoard  of Revenue, West Bengal (2) the  High  Court held  that  as the assessee was authorised as  a  controlled stock  ’,holder  to  realise  central  sales  tax  from  the customers  by a special notification issued by the  Central Government, the case fell within the principle laid down  in Deputy  Commissioner of Commercial Taxes v. M.  Krishnaswami Mudaliar  & Sons.(1) The principle, according to the  Madras High Court in Krishnaswami Mudaliar’s(1) case was as follows                "in  our  opinion,  if we  may  say  so  with               respect, this passage from the judgment of the               learned  Chief  Justice of the  Calcutta  High               Court in Bata Shoe Co. case(3) clearly  brings               out  the distinction between cases  where  the               dealer is not authorised by law to collect the               tax but all the same adds it to the sale price               in  the bill of sale and collects it from  the               customer  and  cases where the  dealer  is  so               authorised.    In  the  former  case   it   is               undoubtedly part of the purchase price, as all               the  collections made by the dealer  from  the               purchaser must be treated as constituting part               of the sale price. if, however, under the law,               the  dealer is empowered to pass on the  sales               tax  to the purchasers, to collect it and  pay               it to the Government, what he is permitted  to               so  collect  under the law would  continue  to               retain its character as tax and it Would never               form part of the purchase price." The  High Court further observed that "the Union  Government themselves  fixed the price of iron material sold by him  to his  customers.   He  was not entitled  to  charge  anything higher.  In (1) 5 S.T.C. 88. (2) 1 S.T.C. 193. 59 addition  to  that price he was permited to  charge  central sales  tax which he was subsequently required to  credit  to Government.   Section 9(A) of the Orissa Sales Tax Act  says that  any amount collected by a registered dealer  as  sales tax  from  his purchasers shall be deposited by him  in  the Government Treasury.  It is true that by its own force  this section  would apply only to Orissa Sales Tax Act.   But  by virtue of sub-section (2) of section 9 of the Central  Sales Tax  Act,  1957 now sub-section (3) in  ocosequence  of  the amending  Act  of 1958] it would also apply to  the  Central Sales  Tax collected by the Controlled  Stockholder."  Thus, following  the principles laid down in the Madras  decision, the Orissa High Court held that the central sales tax  could never form part of the ‘sale price’ as defined in the Orissa Sales Tax Act, and was rightly deducted while estimating the taxable turnover. We  may  mention  that the respondent  was  not  represented before  us.   Mr. O. P. Malhotra, learned  counsel  for  the appellant urged the following points before us :               (1)   That  the expression "tax" in s.  2  (i)               and  s. 5 (2) (b) of the Orissa Sales Tax  Act               means  the tax levied under the  Orissa  Sales               Tax  Act and not under the Central  Sales  Tax

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

             Act;               (2)   That     the    expression     "valuable               consideration"  occurring in s. 2 (h)  of  the               Orissa  Sales  Tax Act  includes  the  central               sales tax realised by the assessee; and               (3)   That the expression "any sum charged for               anything done by the dealer in respect of  the               goods  at  the  time  of  or  before  delivery               thereof"  included the central sales tax  paid               by the assessee at the purchase point. As we have come to the conclusion that the expression "valu- able  consideration" and the word "turnover" do not  include the  central  sales tax paid by the assessee  and  that  the answer to question No. 1 must be in the affirmative, as held by the High Court, it is not necessary to deal with question No. 2. It  is not necessary to decide whether the word "tax" in  s. 2(1)  and S. 5(2) (b) of the Orissa Sales Tax Act means  the tax  levied under the Orissa Sales Tax Act and not  the  tax levied  under the Central Sales Tax Act.  We will,  however, assume  for  the purpose of this case  that  the  expression "tax"  in  S.  2 (1) and S. 5 (2) (b) of the  Act  does  not include central sales tax. 60 We  have set out condition No. 4(ii) of the Iron  and  Steel (Control)  Notification  above.  It seems to us that  it  is clear  from this condition and the fact that the  controlled stockholder  was not entitled to charge a price higher  than that  fixed  by the Government of India, that  the  valuable consideration  for  the  sale was the  price  fixed  by  the Government  of India and did not include the  central  sales tax  which  the  customer had to pay to the  assessee  as  a controlled stockholder.  We do not rely on the provisions of s.  9 (A) of the Orissa Sales Tax Act or the principle  laid down  in  Deputy  Commissioner of  Commercial  Taxes  v.  M. Krishnaswami Mudaliar & Sons.(1) No arguments were addressed to  us on this aspect and we express no opinion whether  the principle  laid down in the Madras decision and S. 9 (A)  of the Orissa Sales Tax Act would apply to an authorisation  to collect  central sales tax under the provisions of the  Iron and  Steel  Control  Order, 1956. and  the  Iron  and  Steel (Control)  Notification,  dated October 18,  1958.   In  our opinion,  the fact that the price which the stockholder  was entitled to charge was statutorily fixed and the stockholder was  not entitled to and did not charge more are  sufficient to  enable  us to come to the conclusion  that  the  central sales  tax paid under the provisions of the Iron  and  Steel (Control)  Notification did not form part of the price  paid by the customer to the assessee. There  is no force in the contention that the central  sales tax  realised  by the assessee falls within  the  expression "any sum charged for anything done by the dealer in  respect of the goods at the time of or before delivery thereof." The assessee by paying the central sales tax when he bought  the goods did not do anything to the goods, and the tax was paid in respect of the transaction of purchase and not in respect of the goods. In  the  result,  agreeing with the  High  Court  we  answer question No. 1 in the affirmative, and we do not consider it necessary to answer question No. 2. The appeals fail and are dismissed.  No costs. Appeals dismissed.. (1) 5 S.T.C. 88. 61

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6