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PETITIONER: THE STATE OF MADRAS AND ANOTHER

       Vs.

RESPONDENT: M/s.  M. A. NOOR MOHAMMED AND CO.

DATE OF JUDGMENT: 12/08/1960

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. SUBBARAO, K. WANCHOO, K.N.

CITATION:  1960 AIR 1254  CITATOR INFO :  RF         1967 SC1537  (4)

ACT: Sales Tax--Sale of hides and skins--Exemption from  multiple taxation--Unlicensed dealers--Whether can claim single Point taxation--Validity   of   rules   Providing   for   multiple taxation--Madras General Sales Tax (Turnover and Assessment) Rules,  1939, r. 16(5) --Madras General Sales Tax Act,  1939 (9 of 1939), ss. 3, 5(vi), 6A.

HEADNOTE: The respondent, a firm carrying on tannery business, used to take out licences under the provisions of the Madras General Sales  Tax Act, 1939, but did not renew the licence for  the assessment year, 952-1953, and was assessed to sales tax  on the  sale value of tanned hides and skins during  the  year. It  challenged  the validity of the order of  assessment  by filing  a petition before the High Court under Art.  226  of the  Constitution  of India, on the grounds  that  under  s. 5(vi)  of the Act the liability to pay sales tax in  respect of hides and skins could only be at a single point, that  r. 16(5)  of  the  Madras  General  Sales  Tax  (Turnover   and Assessment) Rules, 1939, which limited the operation of this mode  of taxation to licensed dealers was ultra vires as  it contravened  S.  5(vi) and had been so held in  V.  M.  Syed Mohammed  & Co. v. The State of Madras, [1954] S.C.R.  1117, and  that s. 6A was not applicable to the case of  a  dealer which did not take out a licence. Held,  that s. 3 of the Madras General Sales Tax Act,  1939, envisages  multipoint  taxation on the total turnover  of  a dealer, 149 but  under  S. 5 an exception is made in the  case  of  sale transactions  of  certain  specified  goods,  providing  for single  point taxation subject to certain  restrictions  and conditions  which include conditions as to licences, and  if the conditions and restrictions are not complied with, under s.  6A  the  tax  is  to be levied under  s.  3  as  if  the provisions  of  s. 5 did not apply to  such  sales.   Accor-

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dingly, r. 16 (5) of the Madras General Sales Tax  (Turnover and Assessment) Rules, 1939, is not ultra vires. Syed  Mohamed & Company v. State of Andhra, [1956] 7  S.T.C. 465 and State of Mysore v. Sarvatula & Co., [1957] 9  S.T.C. 593, approved. V.   M.  Syed  Mohammed & Company v. The  State  of  Madras, [1957] S.C.R. 1117, explained.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 38 of 1959. Appeal  by special leave from the judgment and  order  dated April 2, 1956, of the Madras High Court in Writ Petition No. 313 of 1954. R.   Ganapathy Iyer and T. M. Sen, for the appellants. C.   K.    Daphtary,   Solicitor-General   of   India    and S.Venkatakrishnan, for the respondents. A.   V.   Viswanatha  Sastri  and  S.  Venkatakrishnan   for Intervener No. 1 (Ambur Tanners Association). R.   Gopalakrishnan, for Interveners Nos. 2 and 3 (R.  Chennappa and P. Abdul Wahab). 1960.   August 12.  The Judgment of the Court was  delivered by KAPUR  J.-This  is an appeal by special  leave  against  the judgment  and order of the High Court of Madras  allowing  a petition  under  Article  226  of  the  Constitution.    The question there raised was the legality of the assessment  of Sales  Tax by appellant No. 2, the Deputy  Commercial  Sales Tax  Officer, Saidapet, under the Madras General  Sales  Tax Act, 1939 (Act IX of 1939), hereinafter termed the Act. The  respondent was a partnership firm carrying  on  tannery business  at Chromepet near the city of Madras.  Before  the year  of  assessment,  i. e., 1952-53,  it  was  taking  out licences under the relevant provisions of 150 the Act but it did not renew the licence for the  assessment year.   When called upon to make a return it did not  do  so nor did it raise any objection to the notice served on it on February  28,  1954.  It was assessed to sales  tax  of  Rs. 10,584  on  a  turnover of Rs.  6,77,374-4-4.   It  filed  a petition under Art. 226 to quash the assessment order on the ground  that the order was illegal and not supported by  the authority of law.  This contention was accepted by the  High Court  and  the  petition  was  allowed  with  costs.    The consequence  of  the judgment is that  the  respondent  firm which  is not a licensed dealer under the Act is not  liable to  any  sales tax in respect of its dealings in  hides  and skins.  Against this judgment and order the appellants  have come to this court by special leave. The contention of the respondent firm in the High Court  was that  under s. 5, cl. (vi) of the Act, the liability to  pay sales  tax in respect of hides and skins could only be at  a single  point; that the rule limiting the operation of  this mode  of  taxation to licensed dealers was ultra  vires  and therefore r. 16(5) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, hereinafter called the Turnover and Assessment Rules, was void and inoperative and had been. so held by the Supreme Court in V. M. Syed Mohammed & Co. v. The State of Madras(1) ; that accepting this  interpretation the  State of Madras had deleted cl. (5) of r. 16 by  G.  0. 450, Revenue, dated February 26, 1954, i.e., two days before the  making of the assessment order under dispute;  that  r. 16(5)  of  the Turnover and Assessment Rules  was  the  only provision  imposing  a multiple tax in respect of  sales  of

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hides   and  skins  by  unlicensed  dealers  and  that   the imposition  of the sales tax after the repeal of  that  rule was  illegal and the tax was without the authority  of  law. It was also contended that in the taxation scheme under  the Act,  hides  and skins, because of their importance  in  the international   market,  were  excluded  from   the   direct operation  of  s.  3(1) of the Act  which  was  the  general charging  section and were given special protection  of  the single point taxation under s. 5(vi).  The (1)  [1954] S.C.R. 1117. 151 argument, therefore, was that in the case of sales of  hides and  skins  the  general provision was  inapplicable  and  a special rule for taxation was laid down by s.     5(vi)   of the Act. The High Court held that in the case of hides and it   skins "  the charge levied by s. 3 is subject to the pro.  visions of  S.  5 and in the case of licensed dealers in  hides  and skins,  the charging provision is r. 16 of the Turnover  and Assessment Rules ". The  High Court further held that r. 16(5) of  the  Turnover and Assessment Rules which restricted the benefit of  single point  taxation  to licensed dealers was ultra vires  as  it contravened  s.  5(vi)  of  the  Act  and  s.  6-A  was  not applicable  to the case of a dealer who did not take  out  a licence  for dealing in hides and skins and further that  if r.  16(5)  was ultra vires as being in contravention  of  s. 5(vi),  r.  5,  of  the  Madras  General  Sales  Tax   Rules (hereinafter called the Sales Tax Rules) which requires  the taking  out  of the licence in order to be able to  get  the benefit of single point taxation would also be ultra  vires. Thus  on a true construction of s. 3(1) and s. 5(vi) it  was of the opinion that r. 5 of the Sales Tax Rules and r. 16(5) of the Turnover and Assessment Rules were ultra vires and s. 6A  was  inapplicable to a person who had not  taken  out  a licence.    As  a  consequence  it  quashed  the  order   of assessment of the respondent firm. In  order to decide this appeal it is necessary to refer  to and consider the relevant provisions of the Act and the  two sets of Rules made thereunder.  They are as follows:- S.   3(1) " Subject to the provisions of this Act,- (a)  every dealer shall pay for each year a tax on his total turnover for such year; and  ............................................................. (3)  A dealer whose total turnover in any year is less  than ten  thousand rupees shall not be liable to pay any tax  for that year under sub-section (1) or sub-section (2). (4)  For  the  purposes  of  this  section  and  the   other provisions  of  this Act, turnover shall  be  determined  in accordance with such rules as may be prescribed 152 (5)  The  taxes  under  sub-sections (1) and  (2)  shall  be assessed,  levied and collected in such manner and  in  such instalments, if any, as may be prescribed; S.   5. Subject to such restrictions and conditions as   may be  prescribed,  including  conditions as  to  licences  and licence fees.  ...................................................... (vi) the sale of hides and skins, whether tanned or untanned shall be liable to tax under section 3, subsection (1), only at  such single point in the series of sales  by  successive dealers as may be prescribed. S.   6A. If any restrictions or conditions prescribed  under section 5 or notified under section 6 are contravened or are not  observed  by  a  dealer, or  in  case  a  condition  so

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prescribed  or  notified requires that a  licence  shall  be taken  out  or  renewed, if a licence is not  taken  out  or renewed,  by  the dealer or if any of the  conditions  of  a licence  taken out or renewed by him are contravened or  are not observed, the sales of the dealer, with effect from  the commencement of the year in which such contravention or non- observance took place, may be assessed to tax or taxes under section  3,  as  if the provisions of section 5  or  of  the notification  under section 6, as the case may be,  did  not apply  to such sales and notwithstanding that a licence,  if any,  taken  out  or  renewed by  the  dealer  continued  or continues to be in force during the year ". MADRAS GENERAL SALES TAX (TURNOVER AND                ASSESSMENT) RULES. Rule  4(1).   " Save as provided in sub-rule (2)  the  gross turnover  of a dealer for the purposes of these rules  shall be the amount for which goods are sold by the dealer. (2)  In  the case of the undermentioned goods turnover of  a dealer  for the purposes of these rules shall be the  amount for which the goods are bought by the dealer.  ...................................................... (c)  untanned hides and skins bought by a licensed tanner in the State, and 153 (d)  untanned hides and skins exported outside the State  by a licensed dealer in hides or skins. Rule  15(1).   Rules  6 to 13 shall not  apply  to  licensed tanners  and  other licensed dealers in hides  or  skins  in respect  of  their  dealings  in hides  or  skins;  but  the provisions  of  this and the following rule shall  apply  to them in respect of such dealings. Rule 16(1).  In the case of hides and skins, the tax payable under  section 3(1) shall be levied in accordance  with  the provisions of this rule. (2)  No tax shall be levied on the sale of untanned hides or skins  by a licensed dealer in hides or skins except at  the stage  at which such hides or skins are sold to a tanner  in the State or are sold for export outside the State ; (i)  in  the case of all untanned hides or skins sold  to  a tanner in the State, the tax shall be levied from the tanner on  the  amount for which the hides or skins are  bought  by him; (ii) In  the case of all untanned hides or skins  which  are not  sold to a tanner in the State but are exported  outside the  State, the tax shall be levied from the dealer who  was the last dealer not exempt from taxation under section 3(3), who buys them in the State on the amount for which they were bought by him.  ..................................................... (5)  Sale of hides or skins by dealers other  than  licensed dealers  in hides  or skins shall,subject to the  provisions of  section  3, be liable to taxation on each   occasion  of sale." Rule 5(1) of the  ax Rules provides :- "Every person who ....................................... (d)  deals  in hides and/or skins whether as  a  tanner,  or otherwise, or  ........................................................ shall,  if  he  desires to avail himself  of  the  exemption provided in sections 5 and 8 or of the concession of  single point taxation provided in section 6, submit an 20 154 application  in Form 1 for a licence in respect of  each  of his  places of business to the authority specified  in  sub-

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rule  (2) so as to reach him not later than the 15th day  of October, 1939 ". The scheme of taxation under the Act is this.  Section 3  is the  general charging section under which tax is  levied  in the  manner prescribed in the turnover of a  dealer,  except that  a dealer whose turnover is less than Rs.  10,000/-  is exempted  from  sales tax.  Section 3  envisages  multipoint taxation on the total turnover of a dealer.  In the case  of the sale transactions of certain specified goods set out  in s. 5 of the Act an exception is made.  That section provides for  single  point taxation subject  to  certain  prescribed restrictions and conditions.  By sub-s. (vi) of that section sales of hides and skins are liable to tax under s.3, sub-s. (1),  at  one  single  point  in  the  series  of  sales  by successive dealers.  The language of the section (s.5) shows however  that  this  exemption applies  subject  to  certain restrictions  and conditions which include conditions as  to licences.   The rule, which deals with licences is r.  5  of the  Sales  Tax  Rules, the relevant portion  of  which  has already  been set out It lays down that if a dealer  desires to avail himself of the exemption provided in ss. 5 and 8 or of  the concession as to taxation in s. 5 only at  a  single point,  then he must obtain a licence as prescribed in  that rule.  If the restrictions and conditions contemplated by s. 5  read  with  the  rules are  not  complied  with,  certain consequences  follow as a result of s. 6-A of the Act  which specifically  states  that where a condition  prescribed  or notified  requires  the  taking  out or  the  renewal  of  a licence,   then  in  the  case  of  contravention  of   such conditions or restrictions the tax is to be levied under  s. 3 as if the provisions of s. 5 did not apply to such  sales. This, therefore, is a clear provision which makes the single point  imposition  of  sales tax on hides and  skins  to  be conditional on observing the condition of taking a licence. The  argument  of  inconsistency between  r.  16(5)  of  the Turnover and Assessment Rules and s. 5(vi) of the Act  which was accepted in the High Court receives 155 no  support  from the language of that section  which  is  a concessional  provision  for making the sales of  hides  and skins liable to taxation at a single point; but that, as the opening   words   of  the  section  show,  is   subject   to restrictions and conditions prescribed in the rules and  one of these conditions is the taking of a licence.  All that r. 16(5)  does  is  to  emphasise  the  consequences  of   non- observance  of the conditions which ss. 5(vi) & 6-A have  in clear  terms prescribed.  We find no  inconsistency  between the rule and the sections of the Act.  But it was  submitted that this Court on appeal from a judgment of the Madras High Court  had  sId r. 16(5) to be ultra vires  the  Act.   That contention is based on the judgment of the Madras High Court in V. M. Syed Mohammed & Company v. The State of Madras  (1) which  on  appeal  was affirmed by  this  Court  (2).   This contention  is not well-founded.  In that case, when it  was in  the Madras High Court, it was contended that  the  rules did  not properly carry out the policy underlying  the  Act, which  was  to  keep  the price of  hides  and  skins  at  a competitive level for the world market.  It was there argued that  hides  and skins were articles much in demand  in  the foreign  markets and their export was one of the main  items of  the foreign trade of the State of Madras  which  enjoyed considerable  natural  advantage in tanning because  of  the plentiful  supply  of " Avaram bark "  which  was  specially suited  for the purpose.  It was also argued  that  untanned hides  and  skins were acquired locally or  by  import  from

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other States and were either tanned in the State or exported and therefore the scheme of taxation was to levy the tax  at a single point, i.e., at the stage when articles were tanned in  the State or exported to foreign countries for  tanning. For this reason multiple taxation was violative of s.  5(vi) of  the  Act.   This, it appears, was not  disputed  by  the Government  and it was therefore held that r. 16(5)  of  the Turnover  and  Assessment Rules was ultra  vires.   But  the question was really (1)  (1952) 3 S.T.C. 367. (2)  V.   M.  Syed  Mohammed and Company  v.  The  State  of Andhra, [1954] S.C.R. 1117. 156 not relevant to the issue as was pointed out by  Venkatarama Ayyar, J., at p. 394, where he said:- " Now the contention of the petitioners is that where  there are  sales  by unlicensed dealers to unlicensed  tanners  or unlicensed  dealers,  there is the possibility  of  multiple taxation  and that would be in violation of  section  5(vi). It  is  not disputed on behalf of the Government  that  Rule 16(5)  is repugnant to section 5(vi).  It must therefore  be held to be ultra vires.  But this can bring no relief to the petitioners, as they are all licensed tanners and are in  no manner hurt by the operation of r. 16(5).  This was conceded by the learned Advocate for the petitioners ". This case was then brought in appeal to this Court and S. R. Das, J. (as he then was), observed at p.     1121:- " Lastly, the learned advocate urges that rule 16 (5)  clearly contravenes  the  provisions of section 5(vi)  of  the  Act. This  sub-rule has been held to be ultra vires by  the  High Court,  and indeed, the learned Advocate General  of  Madras did  not in the High Court, as before us, dispute that  rule 16(5)  was  repugnant  to ,section  5(vi).   That  sub-rule, however  affects only unlicensed dealers and the  appellants who are admittedly licensed dealers are not affected by that sub-rule ". This judgment does not show that the repugnancy of the  rule was in controversy or the court pronounced its opinion  upon the merits or it was necessary to do so. The learned Solicitor-General then contended before us  that in  their  counter-affidavit  filed in the  High  Court  the appellants  had accepted the position that r. 16(5)  of  the Turnover  and  Assessment Rules was ultra vires.   But  that will  not  carry  the  matter  any  further,  because  on  a construction  of the provisions of the Act this argument  of repugnancy is not sustainable. The  Andhra  Pradesh High Court rightly did not  accept  the view  that  r.  16(5) was ultra vires  of  the  rule  making authority:  Syed Mohamed & Company v. State of  Andhra  (1). The same view was taken by the (1)  [1956] 7 S.T.C. 465. 472. 157 Mysore High Court in the State of Mysore v. Sarvatula & Co. (1). A  consideration of the relevant provisions of the  Act  and the rules made thereunder shows that the charging section is s.  3(1)  and  the general rule is taxation  i  at  multiple points on the total turnover of the dealer, but in the  case of  sale of certain specified articles a departure has  been made  and tax at single point is leviable  provided  certain conditions  and  restrictions  as  to  licences  which   are envisaged  in s. 5 and laid down in the rules  are  complied with and that r. 16(5) of the Turnover and Assessment  Rules is not ultra vires.

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It was then contended that the provision as to licensing and taxation  in the case of licensed dealers and tanners  at  a single point and a taxation at multiple point in the case of unlicensed  dealers  were  violative  of  Art.  14  of   the Constitution.   But we did not allow this point to be  taken because  it was not raised in the High Court and was  raised for  the  first  time in this Court.   In  our  opinion  the judgment  of  the High Court in regard to  the  ultra  vires nature of r. 16(5) and the inapplicability of s. 6-A of  the Act  was  erroneous  and  the  appeal  must,  therefore,  be allowed, the judgment and order of the High Court set  aside and  the  respondent’s petition dismissed.   The  respondent will  pay the costs of the appellants in this Court  and  in the courts below.                                  Appeal allowed. (1) [1957] 9 S.T.C. 593. 158