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PETITIONER: STATE OF MADRAS

       Vs.

RESPONDENT: T.   NARAYANASWAMI NAIDU AND ANR.

DATE OF JUDGMENT: 12/04/1967

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SHAH, J.C. RAMASWAMI, V.

CITATION:  1968 AIR  194            1967 SCR  (3) 622  CITATOR INFO :  R          1987 SC2244  (1)

ACT: Madras, General Sales Tax Act, (9 of 1939) Ss. 3 and 4-Goods in stock-Liability to tax as last purchase-

HEADNOTE: The  assessee,  a  dealer in cotton,  claimed  deduction  of Sales-tax on the ground that cotton worth that value were in stock on the last day of the assessing year.  The Commercial Tax Officer disallowed the claim holding that as  subsequent disposal had not been proved, it was liable to be taxed as a last purchase.  The Assistant Commissioner upheld the order, but the Sales Tax Appellate Tribunal accepted the assessee’s claim.   The  Department’s revision to the  High  Court  was dismissed.  In to this Court, HELD  :  The assessee was not liable till  the  purchase  of declared  goods  acquired the character of a  last  purchase within the Second Schedule of the Act.  It is true that  Ss. 3  and  4 of the Madras General Sales Tax Act, speak  of  "a year", i.e., the financial year, and it is only the turnover during that year that is liable to taxation in the hands  of the  assessee,  but  s. 4 has to be  read  with  the  Second Schedule,  and reading s. 4 with the Second Schedule, it  is clear  that  a  dealer is not liable to pay  a  tax  on  the purchases until the Purchases acquire ,the quality of  being last  purchases inside the State.  In, other words, when  he files a return and declares the stock in hand, the stock  in hand  cannot be said to have been acquired by last  purchase because  he may still during the next assessment year,  sell it  or  he  may  consume it himself  or  the  goods  may  be destroyed,  etc.  He would be entitled to claim  before  the assessing  authorities that the character of acquisition  of the  stock  in  hand  was  undetermined;  in  the  light  of subsequent events it may or may not become the last purchase inside  the State.  This construction is in consonance  with s. 15 of the Central Sales Tax Act, 1956. [625E-G] Abdulsalan  Rowther  v. State of Kerala, 12 S.T.C.  98,  and Hornusji  Hirjiblioy  v. Commercial Tax Of 113  S.T.C.  773, referred to.

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JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals No. s.  633  & 634 of 1966. Appeals  by special leave from the judgment and order  dated August  11, 1964 of the Madras High Court in Tax Cases  Nos. 105 and 125 of 1963 (Revision Nos. 64 and 81). G. Ramanujam and A. V. Rangam, for the appellant (in both the  appeals. S. T. Desai and G. L. Sanghi, for the respondents (in both the  appeals). The Judgment of the Court was delivered by Sikri,  J.  These  appeals by  special  leave  are  directed against  the judgment of the Madras High Court in Tax  Cases Nos. 105 6 2 3 and  125  of 1963.  The High Court by  its  common  judgment dated  August 11, 1964, confirmed the, orders of  the  Sales Tax Appellate Tribunal. A  common point of law is involved in both the cases and  it will  suffice if we give facts in Tax Case No. 105  of  1963 (Civil Appeal Nos. 633 of 1966) in which the respondent  was one  T. Narayanaswami Naidu, hereinafter referred to as  the assessee.   The  assessee is a dealer in cotton  and  cotton seeds.   Before  the  Additional  Commercial  Tax   Officer, Coimbatore, he claimed to deduct the sum of Rs. 12,32,756.45 as  the value of purchases other than the last purchases  of cotton.    The   Commercial   Tax   Officer   exempted   Rs. 10,11,534.40  but  disallowed the remaining  amount  on  the ground  that  cotton worth Rs. 2,27,250.00 was in  stock  on March  31, 1961.  He found that subsequent disposal  in  the next year had not been proved and, therefore, it was  liable to be taxed as a last purchase.  In holding this he followed the decision of the Kerala High Court in Abdulsalam  Rowther v. State of Kerala(1).  The Appellate Assistant Commissioner (Commercial  Taxes)  upheld  the order, but  the  Sales  Tax Appellate  Tribunal,  dissenting from the  decision  of  the Kerala  High  Court,  in  Abdulsalam  Rowther  v.  State  of Kerala(1), accepted the appeal of the assessee and  demanded the  ease  to  the  Appellate  Assistant  Commissioner   for disposal  afresh  in the light of observations made  by  it. The  Department filed a revision under s. 38 of tile  Madras General Sales Tax Act, hereinafter referred to as the Madras Act,  and the High Court dismissed the revision.  The  State of  Madras having obtained special leave, the appeal is  now before us. The learned counsel for the appellant, Mr. Ramanujam,  urges that  the  decision of the Kerala High Court  in  Abdulsalam Rowthel v. State of Kerala,(1) and of the Mysore High  Court in  Hornusji  Hirjibhoy v. Conmmercial Tax  Officer(2)  laid down  the law correctly, and the Madras High Court erred  in dissenting  from  these decisions in the present  case  (now reported as State of Madras v.     T.          Narayanaswami Naidu(3).               Section 4 of the Madras Act provides               "4.  Notwithstanding  anything  contained   in               section  3,  the tax under this Act  shall  be               payable  by a dealer on the sale  or  purchase               inside the State of declared goods at the rate               and  only at the point specified against  each               in the Second Schedule on the turnover in such               goods in each year, whatever be the quantum of               turnover in that year." In  other words, this section lays down that in  respect  of

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declared  goods  we have to look at the Second  Schedule  in order to find (1)  12 S.T.C. 98. (3) 16 S.T.C. 29. (2) 13 S.T.C. 773. 6 2 4 ,out  the  point at which the tax would be  payable  by  the dealer.  The Second Schedule describes the declared goods in respect  of which a single point tax only is leviable  under s.  4. Item 2 of the Second Schedule is "Cotton, that is  to say,  all  kinds of cotton (indigenous or imported)  in  its unmanufactured  state,  whether ginned or  unginned,  baled, pressed  or  otherwise, but excluding  cotton  waste".   The point of levy is stated as "at the point of last purchase in the State". The  question that arises is : what is the exact meaning  of the expression "at the point of last purchase in the  State" ?  In this connection it may be mentioned that S. 14 of  the Central Sales lax Act, 1956, hereinafter referred to as  the Central Act, declares certain goods as of special importance in inter-State trade and commerce, and cotton is one of  the goods included in s. 14.  Section 15 provides :               "15.  Every sales tax law of a State shall, in               so  far  as  it  imposes  or  authorises   the               imposition of a tax on the sale or purchase of               declared  goods, be subject to  the  following               restrictions and conditions, namely :-               (a)   the  tax  payable  under  that  law   in               respect of any sale or purchase of such  goods               inside  the  State shall not  exceed  two  per               cent.  of the sale or purchase price  thereof,               and such tax shall not be levied at more  than               one stage;" Section  4 of the Madras Act was intended to comply with  s. 15 of the Central Act.  The relevant portion of s. 3 of  the Madras Act, on which. the learned counsel for the  appellant relies, provides :               3(1) Every dealer (other than a casual  trader               or agent of a non-resident dealer) whose total               turnover  for  a  year is not  less  than  ten               thousand  rupees  and every casual  trader  or               agent  of a non-resident dealer,  whatever  be               his turnover for the year, shall pay a tax for               each  year at the rate of two per cent of  his               taxable turnover I" Section  2(p).  defines  "taxable  turnover"  to  mean  "the turnover  on  which a dealer shall be liable to pay  tax  as determined  after  making  such deductions  from  his  total turnover  and  in  such manner as may  be  prescribed",  and "year"  is defined to mean "financial year".  "Turnover"  is defined in S. 2(r) 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               62 5               own  account or on account of  others  whether               for  cash  or for deferred  payment  or  other               valuable  consideration,  provided  that   the               proceeds   of   the  sale  by  a   person   of               agricultural  or horticultural produce,  other               than tea, grown within the State by himself or               on  any  land  in which  he  has  an  interest               whether  as  owner,  usufructuary   mortgagee,               tenant  or otherwise. shall be  excluded  from

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             his turnover;...... The learned counsel for the appellant says that it is  clear from ss. 3 and 4 that a tax under the Madras Act is a yearly tax.   In  other  words, he says, that just  as  under  the, Indian  Income  Tax  Act each assessment  year  is  a  self- contained  unit, so is the assessment year a  self-contained unit  under the Madras Act.  If that is so, he argues,  then what  happens  in subsequent year-., cannot  be  taken  into consideration for determining the taxability of any purchase inside  the  State  of declared goods.   He  says  that  the taxable  event is the last purchase in the State during  the assessment  year  and if stocks are held at the end  of  the assessment  year  it follows that the assessee  holding  the stocks is the last purchaser in the State. In  our opinion, this reasoning is fallacious.  It  is  true that  ss.  3 and 4 speak of "a year",  i.e.,  the  financial year,  and it is only the turnover during that year that  is liable  to taxation in the hands of the assessee, but  s.  4 has  to be read with the Second Schedule, and reading  s.  4 with the Second Schedule, it seems to us clear that a dealer is  not  liable  to pay a tax on  the  purchases  until  the purchases  acquire the quality of being the  last  purchases inside  the State.  In other words, when he files  a  return and declares the stock in hand, the stock in hand cannot  be said  to have been acquired by last purchase because he  may still  during the next assessment year,, sell it or  he  may consume  it himself or the goods may be destroyed, etc.   He would be entitled to claim before the assessing  authorities that  the character of acquisition of the stock in hand  was undetermined;  in the light of subsequent events it  may  or may not become The last purchase inside the State. In our view this construction is in consonance with s. 15 of the Central Act.  If the argument of the learned counsel for the State were to be accepted it would mean that the  States could  with impunity levy purchase tax on declared goods  at more  than one stage, i.e. on purchases in the hands of  one dealer during one assessment year and purchases of the  same goods  in  the  hands  of another  dealer  in  a  subsequent assessment  year, and so on.  Therefore, we agree  with  the Madras  High Court that the assessee is right in  contending that  he was entitled to claim deduction in respect  of  the value  of the stock of Rs. 2,27,250 as being  the  purchases other than last purchases of cotton. L7 Sup.  Cl/67-1 0 626 The  Kerala  High Court in Abdulsalam Rowther  v.  State  of Kerala(1), following certain cases decided under the  Income Tax  Act,  was  influenced  by  the  consideration  that  an assessee  could  not rely on subsequent events in  order  to escape  taxation’  That may be so even under the  Sales  Tax Act, but, according to our view, the assessee is not  liable till  the purchase of declared goods acquires the  character of  a last purchase within the Second Schedule  referred  to above.   In Hornusji Hirjibhoy v. Commercial Tax  Officer(1) the  Mysore High Court also seems to have been impressed  by similar considerations. The  judgment under appeal draws a distinction between  tax- able event and a stage at which the levy of tax in the  case of declared goods is subject to single point levy.  This may cause  confusion,  and  indeed, the  High  Court  gives  one illustration, which it found unnecessary to deal with.   The illustration given is :               "One  can visualise a case for example,  where               goods mentioned above purchased on the 30th of               March,  1960 may be exported by the  purchaser

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             himself,  outside  the State, on  the  2nd  of               April, 1960.  In that case the goods could not               be  assessed  in 1960-61 in the hands  of  the               exporting purchaser, because the taxable event               did  not occur in that year; it could  not  be               assessed in the hands of the seller in 1959-60               because though the taxable event occurred that               year,  the single point stage was not  reached               in  that  year.  One possible way  of  dealing               with such a case is to assess it  subsequently               as escaped turnover." In our opinion, in this illustration, the assessee would  be liable in the financial year 1960-61 as the purchases became the last purchases in that year. In the result the appeal fails and is dismissed with costs. The facts in Tax Case No. 125 of 1963 (Civil Appeal No.  634 of  1966) are similar.  That appeal is also  dismissed  with costs.   The  Appellate Assistant  Commissioner  (Commercial Taxes) will now dispose of the cases remanded to him by  the Sales Tax Appellate Tribunal in the light of the judgment. Y.P.                                                  Appeal dismissed. (1) 12 S.T.C. 99. (2) 13 S.T.C. 773. 62 7