1966 (9) TMI 108 - SC - VAT and Sales Tax

Whether for purposes of section 5(2) of the Act read with rule 4-A(iv)(b) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939 the respondents were the dealers who bought the cotton in the State and were the last dealers not exempt from taxation under section 3(3) of the Act on the amount for which the cotton was bought by them? Held that - Appeal dismissed. The liability to be taxed attaches if the purchase itself by the dealer is within the State. In the case of the sales in question, therefore, the buyers who purchased the cotton bales from the respondents were the last dealers who bought those cotton bales in the State and the single point tax under section 5(2) of the Act had to be levied from them and not from the respondents.

Summary

Issues:
1. Determination of liability to pay sales tax in transactions involving non-resident buyers.
2. Interpretation of section 5(2) of the Madras General Sales Tax Act.
3. Determination of situs of sales for tax purposes.
4. Classification of sales as inter-State trade.
5. Applicability of rule 4-A(iv)(b) of the Madras General Sales Tax (Turnover and Assessment) Rules.

The judgment delivered by the Supreme Court of India involved appeals arising from sales tax assessment proceedings under the Madras General Sales Tax Act concerning sales of cotton to non-resident buyers. The central issue was the determination of liability to pay sales tax in transactions involving non-resident buyers. The Mysore Sales Tax Appellate Tribunal and the High Court of Mysore held that the non-resident buyers were liable to be taxed, not the respondents who sold the cotton within the State. The Tribunal found that the sales were completed at Bellary, where delivery occurred, and the buyers took ownership during transit. The Court rejected the argument that sales were completed outside the State, emphasizing that delivery to common carriers within the State constituted completion of sales.

Regarding the classification of sales as inter-State trade, the Court referred to the Tata Iron and Steel Co. case to explain that property in the goods did not pass during inter-State movement, as the sales were concluded within the Madras area. The Court ruled that these were not inter-State sales. The main contention revolved around the interpretation of rule 4-A(iv)(b) of the Rules. The Court clarified that the tax liability is based on where the purchase occurs, not the location of the buyer. The rule focuses on the dealer who buys the goods in the State and is the last dealer not exempt from taxation. The Court emphasized that the location of the dealer is crucial, not the buyer's location.

Furthermore, an alternative argument was raised regarding the status of outside buyers as dealers conducting business in the State. The Court dismissed this argument, stating that purchases by outside buyers, who were mills acquiring raw materials, constituted business transactions within the State. This argument was deemed invalid as per the precedent set by the Court in a previous case. Ultimately, the Court upheld the decisions of the lower authorities, dismissing the appeals and affirming the liability of the non-resident buyers for sales tax, with costs awarded against the appellants.