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PETITIONER: APPELLATE ASSTT.  COMMR.  ETC.  ETC.

       Vs.

RESPONDENT: L.M.S. SADAK TAMBY & CO.,  ETC.  ETC.

DATE OF JUDGMENT15/10/1974

BENCH: ALAGIRISWAMI, A. BENCH: ALAGIRISWAMI, A. RAY, A.N. (CJ) MATHEW, KUTTYIL KURIEN

CITATION:  1974 AIR 2344            1975 SCR  (2) 427  1975 SCC  (3) 371

ACT: Madras Act 37 of 1964, Section 2(1)-Levy of tax on the  sale of tanned hides and skins-Tax on the amount for which  hides and  skins were last purchased in the untanned  condition-No distinction  between  purchases made inside or  outside  the State-Tax,   whether   contravenes  Article   286   of   the Constitution.

HEADNOTE: In Firm A.T.B. Mehtab Majid & Co. v. State of Madras, [1963] Supp. 2 S.C.R. 435, the Supreme Court struck down Rule 16 of the Madras General Sales Tax Rules made under Madras General Sales Tax Act, IX of 1939, on the ground that where a tanner buys  raw  hides and skins inside the State and  sells  them after tanning he pays the tax only on the purchase price  of raw hides and skins whereas a dealer who purchases raw hides and skins from outside the State and sells the tanned  hides and  skins pays the tax on the price for which tanned  hides and skins are sold and therefore pays more tax. In order  to deal with this situation, the Madras Legislature passed  Act 11  of1963.  As section 2(1) of this Act provided a  uniform rate of 2 per cent for sales during the whole of the  period between  1st April 1955 and 31st March 1959, it  was  struck down by the Supreme Court in A. Hajee Abdul Shakoor & Co. v. State of Madras [1964] 8 S.C.P.. 217. In  order to get over this objection section 2(1)  had  been enacted  by Madras Act 37 of 1964.  Under this  section  the tax  is  leviable on the first seller of dressed  hides  and skins at the rate of one and nine-sixteenth per cent for the period between 1st April 1955 and 31st March 1957.  For  the period  between 1st April 1957 and 31st March 1959 it is  to be  at the rate of two per cent.  The tax is on  the  amount for  which such hides and skins were last purchased  in  the untanned condition. On  the  question whether section 2(1) of Madras Act  37  of 1964 contravenes Article 286 of the Constitution, HELD  : What is taxed under the impugned statute is not  the purchase  of raw hides and skins whether inside  or  outside the  State.   In both the cases it is On the first  sale  of tanned  hides  and skins.  Even if a  person  purchases  raw hides and skins inside the State and sells it after  tanning

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he  pays the tax on the sale of the tanned hides  and  skins and  not on the Purchase of raw hides and skins  though  the amount of tax payable is calculated on the amount for  which such  raw  hides and skins were purchased.  Similar  is  the position  with  regard  to raw  hides  and  skins  purchased outside the State.  Thus there is no discrimination  between the sellers of tanned hides and skins whether the raw  hides and  skins  out  of which they were  tanned  were  purchased inside  the  State  or outside the State.  The  tax  is  not leviable  even in the case of raw hides and  skins  imported from another State but on hides and skins tanned from  those raw  hides and skins. Only the tax is levied on  the  amount for  which  the raw skins and hides  ware  purchased.   This amount is used only for the purpose of quantification of the tax.  The impugned statute does not suffer from the vice  of taxation of the imparted raw hides and skins. [430 C-F]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1366, 1850 to 1863 & 2550 to 2551 of 1969, 1355 & 1356 of 1970,and 1292 and 1293 of 1973. From  the  Judgments  &  Order  dated  the  1st   March/26th February’ 1969/29th July/2nd August, 1971 of the Madras High Court  in W.Ps. Nos. 1895 of 1966, 1084, 1192,  1194,  1800, 1896, 1898, 1907-1910, 2089 of 1966, 646 of 1967,  3536-3537 of 1965 and Tax Cases Nos. 57 & 58 of 1969 and 191 & 197  of 1971 respectively. 428 Govind Swaminathan, Advocate General for the State of  Tamil Nadu, A.  V.  Rangam,  K. Venkataswami, N.S.  Sivam  and  A. Subhashini, for the appellants (In all the Appeals & SLP No. 1974/70) A.   Abdul   Karim  and  K.  Rajendra  Choudhary,  for   the respondents (In 1366, 1850-53 & 1858-1861/69) K. V. Pillai, for the respondents (In 1854/69) E.C Agarwala, for the applicant/intervener. A.K.  Sen and S. Gopalakrishnan, for respondents  (In  2550- 51169, 1355-1356/70 and 1292-1293/73). The Judgment of the Court was delivered by ALGIRSWAMI,  J.-These  appeals  raise the  question  of  the validity  of  section 2(1) of Madras Act 37 of  1964.   That section reads as follows "Special  provisions  in respect of tax on sale  of  dressed hides and skins in certain cases :- Notwithstanding  anything  contained in the  Madras  General Sales  Tax  Act, 1939 (Madras Act IX of  1939)  (hereinafter referred  to  as  the  said  Act),  or  in  the  rules  made thereunder  (hereinafter referred to as the said Rules),  in respect  of sale of dressed hides and skins (which were  not subjected  to tax under the said Act as raw hides &  skins), the  tax under the said Act shall be levied from the  dealer who in the State is the first seller in such hides and skins not exempt from taxation under sub-sec. (3)  of Sec. 3 of the said Act:- (i)  for  the  period commencing on the 1st April  1955  and ending  on the 31st March 1957, at the rate of one  &  nine- sixteenth per cent, and (ii) for  the period commencing on the 1st April-, 1957  and ending on the 31st March 1959, at the rate of two per  cent, of  the  amount  for which such hides and  skins  were  last purchased in the- untanned condition." In  order to understand the implications of this section  it is necessary to refer to certain other provisions of law and

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two previous decisions of this Court.  Rule 16 of the Madras General  Sales Tax, Rules made under Madras Act IX  of  1939 read as follows :               "In  the case of untanned hides  and/or  skins               the  tax under Sec. 3(1) shall be levied  from               the  dealer who is the last purchaser  in  the               State not exempt from taxation under Sec. 3(3)               en  the  amount for which they are  bought  by               him.               2(i) In the case of hides or skins which  have               been  tanned outside the State the  tax  under               Sec.  3(1) shall be levied from the defer  who               in the State is the first dealer in such hides               or  skins not exempt from taxation under  Sec.               3(3) on the amount for which they are sold  by               him.                429               (ii)In the case of tanned hides or skins which               have  been  tanned within the State,  the  tax               under sec. 3(1) shall be levied, from a person               who is the first dealer in such hides or skins               not  exempt from taxation under Sec.  3(3)  on               the amount for which they are sold by him.               Provided  that,  if  he proves  that  tax  has               already  been levied under Sub-rule (1)on  the               untanned  hides  and skins out  of  which  the               tanned  hides and skins had been  produced  he               ,hall not so liable.  " This  Rule was struck down by this Court on the ground  that where a tanner buys raw hides and skins inside the State and sells  them  after  tanning  he pays the  tax  only  on  the purchase  price  of  raw  hides and  whereas  a  dealer  who purchases  raw  hides and skins from outside the  State  and sells  the tanned hides and skins pays the tax on the  price for which tanned hides and skins are sold and therefore pays more tax.  The judgment of this Court in Firm A.T.B.  Mehtab Majid  & Co. v. State of Madras is reported in [1963]  Supp. (2)  S.C.R. 435.  Thereafter the Madras  Legislature  passed Act 11 of 1963 to deal with this situation.  Section 2(1) of that Act reads as follows, : "Special  provision  in respect of tax on  sale  of  dressed hides and skins in certain cases--               Notwithstanding  anything  contained  in   the               Madras  General Sales Tax Act 1939 (Act IX  of               1939)  (hereinafter  referred to as  the  said               Act),   or  in  the  rules   made   thereunder               (hereinafter  referred to as the said  Rules),               during  the  period commencing on  1st  April,               1955  and ending on the 31st March,  1959,  in               respect  of  sale of dressed hides  and  skins               (which  were  not subjected to tax  under  the               said Act as raw hides and skins) the tax under               the  said Act shall be levied from the  dealer               who  in the State is the first seller in  such               bides and skins not exempt from taxation under               sub-sec.  (3) of Sec. (3) of the said  Act  at               the  rate  of two par cent of the  amount  for               which such hides and skins were last purchased               in the untanned condition." It  would be noticed that this section deals with the  soles during  the  period between 1st April 1955  and  31st  March 1959.   From 1st April 1955 to 31st March 1957 the  rate  of taxation  in  Madras State, was one and  nine-sixteenth  per cent.   As  the section provided a uniform rate of  two  per cent  for sales during the whole of the period  between  ist

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April  1955 and 31st March 1959 it was struck down  by  this Court  in  A. Hajee Abdul Shakoor & Co. v. State  of  Madras [1964] 8 S.C.R. 217) on the ground that for the period  from 1st   April,   1955  to  31st  March,  1957  there   was   a discrimination between a tanner who tans from raw hides  and skins purchased inside the State who would pay only one  and nine sixteenth per cent on the raw hides and skins purchased by  him  and  a tanner who purchased skins  and  hides  from outside  the State who would have to pay at the rate of  two per cent under this section.  It 430 is  to  get  over  this objection  that  the  section  first referred to has been passed. Under the section the tax is leviable on the first seller of dressed  hides  and  skins  at the rate  of  one  and  nine- sixteenth per cent for the period between 1st April 1955 and 31st March 1957.  For the period between 1 st April 1957 and 31st March 1959 it is to be at the rate of two percent.  The tax  is  on the amount for which such hides and  skins  were last  purchased  in  the untanned condition.   It  would  be noticed  that it does not make any distinction  between  the purchase of raw hides and skins inside the State and outside the  State.   The  tax itself is on the first  sale  of  the tanned hides and skins but it is calculated on the basis  of the  purchase per price of the raw hides and  skins  whether they  word purchased inside the State or outside the  State. The  out  of-State purchase of raw hides and  skins  is  not taxed.  That would be subject to tax under the Central Sales Tax  Act.  But what is taxed under the impugned  statute  is not  the purchase of raw hides and skins whether  inside  or outside the State.  In both cases it is on the first sale of tanned  hides  and skins.  Even if a  person  purchases  raw hides and skins inside the State and sells it after  tanning he  pays the tax on the sale of the tanned hides  and  skips and  not on the purchase of the raw hides and  skins  though the  amount of tax payable is calculated on the  amount  for which  such raw hides and skins were purchased.  Similar  is the  position with regard to raw hides and  skins  purchased outside the State.  Thus there is no discrimination  between the  sellers of tanned hides and skins whether the raw  hide and  skins  out  of which they were  tanned  were  purchased inside  the  State  or outside the State.  The  tax  is  not leviable even in ,case of raw hides and skins imported  from another  State but on hides and skins tanned from those  raw hides  and skins.  Only the tax is levied on the amount  for which  the raw skins and hides were purchased.  This  amount is  used only for the purpose of quantification of the  tax. The  tax is not on the purchase of the raw hides and  skins. We do not, therefore, sea how the tax levied on the sale  of tanned  hides  and  skins contravenes Articles  286  of  the Constitution.   Actually as the value of hides and skins  in their tanned condition is higher than the value of raw hides and  skins  from  out of which they are  tanned  the  person importing  raw  hides and skins from outside the  State  can have  no grievance that the tax is levied not on the  amount for  which  the tanned hides and skins are sold but  on  the amount  for which raw hides and skins have  been  purchased. Nor does he pay a higher tax than the person who sells hides and skins tanned from locally purchased raw hides and skins. It was open to the State to have levied the tax on the  sale price  of tanned hides and skins in which case  there  could have been no argument that it was a tax on the imported  Raw hides and skins.  But the State chose to levy the tax on the basis  of  the purchase price of raw hides and  skins  which would  mean lesser tax. it does not suffer from the vice  of

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taxation of the imported raw hides and skins. We are unable to understand the view of the High Court  that if  the  sale price were taxed and rebate  were  given  then there  would  be  no  objection  to  the  tax.   Wa  do  not understand how that can be done. 431 We asked the learned advocates appearing for the respondents to tell us how that can be done and they were not able to do so.   The cost of conversion of the raw hides and  skins  to tanned  hides and skins might differ from tanner to  tanner. It is much easier to get figures. for the purchase price  of the  raw  hides and skins or the sale price  of  the  tanned hides and skins than the cost of conversion.  As the  scheme of taxation is not on the basis’ of the sale price of tanned hides  and skins the suggestion of the High Court cannot  be adopted.   We,  therefore, hold that the High Court  was  in error in striking down the impugned provision of law. In  S.L.P.  No.  1974 of 1970, special leave  to  appeal  is granted and the appeal allowed. The appeals are allowed with costs. Appeals allowed. V.M.K. 432