http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: STATE OF MYSORE

       Vs.

RESPONDENT: YADDALAM LAKSHMINARASIMHAIAH SETTY AND SONS

DATE OF JUDGMENT: 10/11/1964

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

CITATION:  1965 AIR 1510            1965 SCR  (2) 129  CITATOR INFO :  RF         1969 SC 147  (21)  E          1973 SC1325  (3,4)  R          1975 SC1604  (1,5,7,8,9)

ACT: Central  Sales Tax Act (74 of 1956), ss. 6, 8(2) and  9  and Mysore  Sales Tax Act (25 of 1957),  s.  5(3)(a)-Inter-State sale  of  powerloom  textiles-Assessee  not  the  first   or earliest dealer in State-Liability to tax.

HEADNOTE: The  assessee  was a dealer in Mysore dealing  in  powerloom textiles.   His turnover in the course of inter-state  trade was assessed and taxed by the Commercial Tax Officer,  under s.  9  of  the  Central Sales  Tax  Act,  1954,  before  its amendment  in  1958.   The order was upheld  by  the  Deputy Commissioner of Commercial Taxes and the Sales Tax Appellate Tribunal.  The High Court, in revision, held that the  sales were not "first sales" within the State, and that not  being exigible to tax under the State Sales Tax Act (Mysore Act 25 of  1957),  no tax was payable under the Central  Act.   The State  appealed to the Supreme Court and contended that  the assessee  was  liable  to be taxed because of s.  6  of  the Central Act HELD  :  (Per Subba Rao and Sikri, JJ.) Though s. 6  of  the Central Act is the charging section the liability to pay tax is subject to the other provisions in the Act.  Section 8(2) provides that tax shall be calculated at the same rates  and in  the  same manner as would have been done if the  had  in fact,  taken  place inside the appropriate State, and  s.  9 provides that, under the Central Act, tax shall be levied in the same manner as the tax on the sale or purchase of goods, under  the general sales tax law of the State  is  assessed, paid  and collected.  The word "levied" means "imposed"  and since  s.  5(3)(a) of the Mysore Sales Tax  Act,  read  with Schedule  H  of  that Act provides that  the  tax  shall  be levied,  in the case of powerloom goods on the first or  the earliest  of  successive  dealers  in  the  State,  and  the assessee  was not such a dealer, no tax could be  levied  on him   in   respect  of  the  disputed  turnover.    Such   a construction avoids the anomaly of the State collecting  tax

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

on powerloom textiles only at a single point and the Centre, through the agency of the State authorities, collecting  the said  tax  for and on behalf of the State  at  multi-points. [131 A; 132 G; 133 B, D-F, H] Per  Shah, J. (dissenting) : The High Court was in error  in regarding  We* other than the first sales as  exempted  from liability  to pay tax under the Central Act, when the  sales sought to be taxed, were in the course of inter-state  trade or commerce. [138 C-D] Section   6   of  the  Central   Act   charges   inter-state transactions  to  tax.   ’Me  function  of  a.  8(2)  is  to prescribe the rate and the manner of calculation of tax : it is  not  intended to incorporate the entire  procedural  and substantive State law relating to tax.  Section 9(1) and (2) establish  that the machinery of assessment, collection  and enforcement  of  liability prescribed by the  State  statute alone  is incorporated in the Central Act.  Neither s.  8(2) nor s. 9 cut down the plenary charge imposed by a. 6, nor 130 do  they attract any exemptions from tax prescribed  by  the State law. [136 B-E]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 165 of 1964. Appeal  by special leave from the judgment and  order  dated January 22, 1962, of the Mysore High Court in Civil Revision Petition No. 964 of 1961. S.   V. Gupte, Solicitor-General, M. S. K. Sastri and B.   R. G. K. Achar, for the appellant. R. Gopalakrishnan, for the respondent. The  Judgment  of Subba Rao and Sikri JJ. was  delivered  by Sikri J. Shah J. delivered a dissenting Opinion. Sikri,  J.  This  is an appeal  by  special  leave  directed against the judgment of the Mysore High Court accepting  the revision  petition of the respondent before us,  hereinafter referred to as the assessee. The  relevant facts are these.  The assessee is a dealer  in powerloom  and  handloom textiles, both  within  the  Mysore State and in the course of inter-State trade.  For the  year 1957-58, the Commercial Tax Officer, Bangalore, assessed and taxed the turnover relating to powerloom textiles under S. 9 of  the Central Sales Tax Act (LXXIV of  1956),  hereinafter referred  to  as  the Central Act, as it  stood  before  its amendment  by the Central Sales Tax (Second Amendment)  Act, 1958  (XXX  of  1958).   This  was  upheld  by  the   Deputy Commissioner  of  Commercial Taxes.  The  Mysore  Sales  Tax Appellate Tribunal also affirmed the order.  The High Court, in  revision,  accepted the plea of the  assessee  that  its turnover  consisting  of sales of textiles  manufactured  by means  of powerlooms in the course of inter-State  trade  is liable to be taxed at the same rate and exactly in the  same manner as they would have been taxed if they had been intra- state   transactions.   The  High  Court  arrived  at   this conclusion  because, according to it, the true  construction of  s. 8 (2) of the Central Act is that any exemption  given by  a State Sales Tax Act or the point determined by  it  at which a sale is to be taxed applies to assessments under the Central Act. 131 The  assessee’s plea, in brief, is that he is not the  first or  earliest  of  the successive  dealers  of  the  disputed turnover,   and,  therefore,  if  he  had  sold  the   goods intrastate, no tax would have been levied on him.  The reply

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

of the Department is that this is true but under the Central Act he is liable to be taxed because of s. 6, and the  point at which a turnover is taxed has nothing to do with the man- ner of calculation of tax. The relevant sections of the Central Act are as follows               "6.  Liability to tax on inter-State sales  :-               Subject  to the other provisions contained  in               this Act, every dealer shall, with effect from               such  date as the Central Government  may,  by               notification in the Official Gazette, appoint,               not  being earlier than thirty days  from  the               date  of such notification, be liable  to  pay               tax  under this Act on all sales  effected  by               him  in  the course of  inter-State  trade  or               commerce during any year on and from the  date               so notified.               8.    Rate  of tax on sales in the  course  of               inter-State trade or commerce               (1)   Every  dealer  who,  in  the  course  of               inter-State               trade or commerce sells to a registered dealer               goods  of the description referred to in  sub-               section  (3) shall be liable to pay tax  under               this  Act, which shall be one per cent of  his               turnover :               Provided  that, if under the sales tax law  of               the appropriate State, the sale or purchase of               any  goods  by  a dealer is  exempt  from  tax               generally  and  not in specified cases  or  in               specified  circumstances or is subject to  tax               (by  whatever name called) at a rate or  rates               which is or are lower than the rate  specified               in subsection (1), the tax payable under  this               Act  on  the turnover in relation to  sale  of               such goods in the course of inter-State  trade               or   commerce  shall  be  nil  or   shall   be               calculated at the lower rate, as the case  may               be.               (2)The  tax  payable by any dealer  in  any               case  not  falling within sub-section  (1)  in               respect  of the sale by him of ’any  goods  in               the  course of inter-State trade  or  commerce               shall  be calculated at the same rates and  in               the same manner as would have been done if the               sale  had,  in fact, taken  place  inside  the               appropriate State; and for                132               the  purposes of making any  such  calculation               any such dealer shall be deemed to be a dealer               liable  to pay tax under the sales tax law  of               the  appropriate State,  notwithstanding  that               he,  in fact, may not be so liable under  that               law.               9.Levy and collection of tax.-(1) The  tax               payable by any dealer under this Act shall  be               levied and collected in the appropriate  State               by  the  Government  of India  in  the  manner               provided in sub-section (2).               (2)The  authorities  for  the  time   being               empowered  to  assess,  collect  and   enforce               payment of any tax under the generalsales               tax  law  of the appropriate State  shall,  on               behalf of the Government of India and  subject               to  any  rules made under  this  Act,  assess,               collect and enforce payment of any tax payable

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

             by a dealer under this Act in the same  manner               as  the tax on the sale or purchase  of  goods               under  the general sales tax law of the  State               is assessed, paid and collected; and for  this               purpose  they may exercise all or any  of  the               powers  they have under the general sales  tax               law  of the State; and the provisions of  such               law, including provisions relating to returns,               appeals,   reviews,   revisions,   references,               penalties  and compounding of offences,  shall               apply accordingly.               (3)The  proceeds  (reduced by the  cost  of               collection)  in any financial year of any  tax               levied  and  collected under this Act  in  any               State  on  behalf of the Government  of  India               shall, except insofar as those proceeds repre-               sent    proceeds   attributable    to    Union                             territories,  be  assigned to  that  S tate  and               shall  be  retained by it;  and  the  proceeds               attributable  to Union territories shall  form               part of the Consolidated Fund of India." Section 6 of the Central Act is the charging section.   Sub- ject  to  the other provisions contained in the  Act,  every dealer  is  liable  to pay tax under the Act  on  all  sales effected  by him.  It will be noticed that the liability  is not absolute but subject to the other provisions of the Act. If  the  effect  of another provision is to  take  away  the liability,  effect will have to be given to it.   Section  8 prescribes  the  rates of tax to be levied.   It  is  common ground  that  s. 8 (1) does not apply to the  facts  of  the case,  but the proviso is important as it indicates that  in some  cases falling within the proviso the rate may be  nil. In other words, notwithstanding S. 6, the dealer, may not be liable to pay any tax if                             133 he comes within the proviso to & 8 1 ). It follows that  the scheme  of the Act is not that every transaction  in  inter- State trade must bear some tax. Section 8(2) provides for the method of calculating the tax; under  that sub-section, the tax shall be calculated at  the same rates and in the same manner as would have been done if the  sale had, in fact, taken place inside  the  appropriate State.  The expression "in the manner" may give rise to  two conflicting views, namely, (i) it is concerned only with the calculation of the tax, and (ii) it deals not only with  the calculation of the rates but also the manner of levy of  the tax.  But s. 9(1) dispels the ambiguity for it says that the tax  payable  by any dealer under the Central Act  shall  be levied  and  collected  in  the  appropriate  State  by  the Government  of India in the manner provided  in  sub-section (2);  and sub-s. (2) of s. 9 empowers the appropriate  State authorities  to assess, collect and enforce payment  of  any tax payable by any dealer under the Central Act in the  same manner as the tax on the sale or purchase of goods under the general  sales  tax law of the State is assessed,  paid  and collected.  The expression "levy’ means "impose".  Under  s. 5(3)  (a)  of the Mysore Sales Tax  Act,  1957,  hereinafter called the State Act, tax shall be levied in the case of the sale of any of the goods mentioned in col. (2) of the Second Schedule by the first or the earliest of successive  dealers in the State, who is liable to tax under that section, a tax at the rate specified in the corresponding entry of Col. (3) of the said Schedule on the turnover of sales of such dealer in each year relating to such goods.  When s. 9(1) says that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

under the Central Act tax shall be levied in the same manner as  the  tax  on the sale or purchase  of  goods  under  the general  sales  tax law of the State is assessed,  paid  and collected,  it  is reasonable to hold  that  the  expression "levied"  in  s.  9(1)  of the Central  Act  refers  to  the expression "levied" in s. 5 (3) (a) of the State Act.  There is  no  reason why the Central Act made a departure  in  the manner of levy of tax on the specified goods which are taxed only  at  a single point under the State Act : if  any  such radical  departure was intended, the Central Act would  have expressly stated so.  The Central Act was passed to levy and collect sales-tax on interState sales to avoid confusion and conflict  of jurisdictions; the tax is also  collected  only for the benefit of the States.  Therefore. the  construction we accept avoids the anomaly of the State collecting tax  on powerloom  textiles only at a single point and  the  Centre, through the agency of the State authorities, collecting  the said tax for and on behalf of the State at multi-points. 134 There has been considerable difference of opinion among  the High Courts about the true construction of S. 8(2), but none of them have relied on S. 9 of the Central Act.   Therefore, it is not necessary to refer to cases cited before us. For the foregoing reasons we hold, though for different rea- sons,  that the order of the High Court is correct.  In  the result, the appeal is dismissed with costs. Shah, J. The High Court of Mysore has held that sales  which were  not  "first sales" within the Mysore State  being  not exigible  to tax under the Mysore Sales Tax Act, no tax  was payable thereon under the Central Sales Tax Act, 1956. The provisions of the Central Sales Tax Act in force at  the relevant time may be briefly referred to.  Section 6 imposes upon   ;every  dealer,  subject  to  the  other   provisions contained in the Act, liability to pay tax under the Act  on all sales effected by him in the course of inter-State trade or  commerce  during  any  year.   Section  7  provides  for registration of dealers.  Section 8 deals with the rates  of tax on sales in the course of inter-State trade or commerce. By  sub-s.  (2), as it stood at the relevant  time,  it  was provided :               "The tax payable by any dealer in any case not               falling  within sub-section (1) in respect  of               the sale by him of any goods in the course  of               inter-State   trade  or  commerce   shall   be               calculated  at the same rates and in the  same               manner  as  would have been done if  the  sale               had,   in   fact,  taken  place   inside   the               appropriate  State  and  for  the  purpose  of               making  any such calculation any  such  dealer               shall be deemed to be dealer liable to pay tax               under  the  sales tax law of  the  appropriate               State,  notwithstanding that he, in fact,  may               not be so liable under that law."               Section 9 provided for levy and collection  of               tax.  It provided               "(1) The tax payable by any dealer under  this               Act  shall  be  levied and  collected  in  the               appropriate  State by the Government of  India               in the manner provided in subsection (2).               (2)The  authorities  for  the  time   being               empowered  to  assess,  collect  and   enforce               payment of any tax under the general sales tax               law of the appropriate State shall, on  behalf               of the Government of India and subject to any                135

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

             rules made under this Act, assess, collect and               enforce payment of any tax payable by a dealer               under  this Act in the same manner as the  tax               on  the  sale or purchase of goods  under  the               general   sales  tax  law  of  the  State   is               assessed,  paid  and collected;  and  for  the               purpose  they may exercise all or any  of  the               powers  they have under the general sales  tax               law  of the State; and the provisions of  such               law, including provisions relating to returns,               appeals,   reviews,   revisions,   references,               penalties  and compounding of offences,  shall               apply accordingly.               (3) The  turnover of the respondents sought to be  taxed  arises out of transactions of sale of handloom and powerloom  cloth effected  by  them  in the course of  inter-State  trade  or commerce.   Under  the Mysore Sales Tax Act, 1957,  sale  of these goods was liable to tax under S. 5 (3 ) (a) read  with Entry 7 in Sch.  II of the Act, at a single point on sale by the  first  or  the earliest of successive  dealers  in  the State.  It is common ground that the respondents are not the first or the earliest of successive dealers in the State  in respect  of the transactions sought to be taxed.  Section  6 charges  to tax sales in the course of inter-State trade  or commerce of every dealer, but the Act does not prescribe the rates  at  which  tax is to be levied, nor does  it  set  up machinery  for  assessment, collection  and  enforcement  of liability  to  pay tax, charged upon  inter-State  sales  of dealers.  By S. 8(2) tax payable by the dealer in respect of his sales not falling within sub-s. (1)-and the turnover  in the  present case is not in respect of sales falling  within sub-s. (1)-has to be calculated at the same rates and in the same  manner as would have been calculated, if the sale  had taken  place  inside the appropriate State.  The  clause  in terms  only  deals with calculation of the tax-the  rate  at which and the manner in which the tax has to be  calculated- under  the  State law : it does not attract  any  exemptions from tax prescribed by the State law. Use  of the expression "in the same manner" in S. 8 (2)  has not  the  effect  of assimilating  the  procedural  and  the substantive provisions relating to the imposition, levy  and collection  of tax as are provided by the State law  in  the matter of collection of tax under the Central Sales Tax Act. The Legislature has not said so in express terms, and  there is  no implication to that effect in the scheme of the  Act. Section  9(1) invests the appropriate State Government  with authority to levy and collect tax, in the manner provided by sub-s.  (2).   By  sub-s. (2) of S. 9  the  Legislature  has expressly  provided  that  the  tax  has  to  be   assessed, collected and 136 payment  has to be enforced under the general sales tax  law of  the  appropriate State on behalf of  the  Government  of India.   The  scheme devised by the  Legislature  is  fairly clear.   Section 6 charges inter-State transactions to  tax. The  function  of S. 8(2) is to prescribe the rate  and  the manner  of  calculation  of  tax : it  is  not  intended  to incorporate the entire procedural and substantive State  law relating  to tax.  By sub-s. (2) of S. 9 the  machinery  for assessment,  collection and enforcement of liability to  pay tax is set up.  Neither S. 8 (2) nor S. 9 (2) cuts down  the plenary  charge  imposed by s. 6. It is true  that  s.  9(1) directs  that the tax payable by IL dealer shall  be  levied and  collected, in the manner provided in that  sub-section.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

The sub-section, however, does not charge turnover to tax  : the  turnover  stands  already charged by S.  6.  Again  the inter-relation  of  the  two sub-sections of  S.  9  clearly establishes that the machinery of assessment, collection and enforcement  of  liability prescribed by the  State  statute alone  is incorporated in the Central Sales Tax Act.  I  am, therefore,  unable to hold that under sub-sections  (1)  and (2)  of  s.  9,  the  power  conferred  upon  the  authority competent to assess the tax in the same manner as the tax on the  sale or purchase of goods under the general  sales  tax law  includes the power to admit to exemptions  provided  by the  State law, inter-State sales-taxable under the  Central Sales Tax Act. This  view has been taken in several cases which  have  come before  the Madras.  Kerala and Andhra Pradesh High  Courts, in S. Mariappa Nadar and others v. The State of Madras(1) it was held by the Madras High Court that tax leviable under s. 8(2)  was on the turnover under the Central Sales  Tax  Act, and not under the Madras General Sales Tax Act.  There  was, in the view of the Court, nothing in S. 8(2) which  provided that the interState nature of the transaction was taken away and  the  transaction became intra-State.  The Act  did  not declare  that  the  transaction shall be deemed  to  be  one inside  the  State.  The local sales tax law applied  to  it only  to the extent to which it was  specifically  directed. Therefore by the terms of S. 8 the assessee was not entitled to  exclude  from the turnover the inter-State  sales.   The Court  also held that the phrase "in the same manner" in  S. 9(3) which was substituted for the original sub-s. (2) of S. 9,  by the Central Sales Tax (Second Amendment)  Act,  19581 did not make applicable all the incidents of the local sales tax  law to the assessment under the Central Sales Tax  Act. The phrase merely contemplated that the procedure of  making an assessment, collection (1)[1962] 13 S.T.C. 371. 137 of tax, and the provisions relating to the determination  of turnover  shall be the same as laid down in the local  Sales Tax Act. In  M.  Abbas and Company v. The State of Madras(1)  it  was held  by  the  Madras High Court that  for  the  purpose  of attaching  liability  to sales tax under S. 8 (2)  the  fact that  in respect of that transaction the dealer may  not  be liable  under  the  local sales tax law  (goods  sold  being subject  only to a single point levy under the  local  sales tax law) is of no consequence. The  principle  of  Mariappa’s case(2) was  applied  by  the Kerala  High  Court in Parvathi Mills (Private) Ltd  v.  The State of Kerala(8), in which excise duty paid to the Central Government by a dealer and collected from his customers  was not  permitted  to  be excluded from  the  turnover  by  the application  of  rule 7(1) of the General Sales  Tax  Rules, 1950, framed under the local Sales Tax Act.  It was observed in that case that the expression "in the same manner" in  S. 9(2)  of  the  Central Sales Tax Act  did  not  attract  the application of the rule which justified the exemption. The Andhra Pradesh High Court in Sri Surya Trading Firm  and others  v.  The State of Andhra Pradesh ( 4 ) held  that  an assessee  dealing  in handloom cloth and  whose  inter-State sales fell under s. 8(2) of the Central Sales Tax Act, 1956, was not entitled to the benefit of the exemption granted  to handloom  cloth under the notification issued by  the  State Government  on December 13, 1957, in exercise of the  powers conferred under S. 9(1) of the Andhra Pradesh General  Sales Tax  Act,  1957.   The fiction created by s. 8  (2)  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

Central  Sales  Tax  Act, 1956, was  only  for  the  limited purpose  of  calculating  the rate, and the  position  of  a dealer  under S. 8 (2) could not be equated with that  of  a dealer governed by the Andhra Pradesh General Sales Tax Act, 1957, for every purpose. In  The  State of Mysore and another v. Mysore  Paper  Mills Ltd(5) the Mysore High Court also approved of the  principle of  Mariappa’s case(2) and Parvathi Mills’ case(3) and  held that by the use of the expression "in the same manner" in S. 9 (3) which was substituted for the original s. 9 (2) by the Central  Sales  Tax (Second Amendment) Act,  19581  all  the incidents of the local sales tax law to the assessment under the  Central  Sales  Tax  Act  are  not  applied:  what   is contemplated by that phrase is that the procedure of  making an  assessment and collection of tax is the same as  in  the local Sales Tax Act. (1) (1962) 13 S.T.C. 433. (2) (1962) 13 S.T.C. 371. (3) (1962) 13 S.T.C. 927. (4) (5964) 1 5 S.T.C. 176. (5) (1964) 15 S.T.C. 176. Sup./65-10 138 In my view these cases correctly interpret the words of s. 8 (2) and S. 9 (2) of the Central Sales Tax Act as they  stood before, its amendment in the year 1958.  These cases, it  is true,  did not expressly deal with the interpretation of  S. 9(1)  of the Central Sales Tax Act, but in my judgment,  for reasons  already stated, the machinery incorporated by  sub- ss. (1) & (2) of s. 9 of the Central Sales Tax Act from  the State  statute  only relates to assessment,  collection  and enforcement of liability to tax. In  my view the High Court was in error in  regarding  sales other than the first sales exempt from liability to pay  tax under the Central Sales Tax Act when the sales sought to  be taxed were in the course of inter-State trade or commerce.                            ORDER In  accordance with the Opinion of the majority this  Appeal is dismissed with costs. 139