1971 (7) TMI 133 - SC - VAT and Sales Tax

Whether the collection of sales tax by the dealer from his purchasers can be considered as valuable consideration received by him for the sale of goods? Held that - Appeal dismissed. When the seller passes on his tax liability to the buyer, the amount recovered by the dealer is really part of the entire consideration paid by the buyer and the distinction between the two amounts-tax and price-loses all significance.

Summary

Issues:
Interpretation of the term "sale price" under the Madhya Pradesh General Sales Tax Act, 1958 and whether sales tax collected by the dealer from buyers constitutes a part of the sale price.

Analysis:
The appeals before the Supreme Court arose from references made to the High Court of Madhya Pradesh under section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958. The question at hand was whether the sales tax collected by the appellant, a dealer in vanaspati, from buyers should be considered a part of the sale price of the goods sold. The authorities held that the sales tax collected should be included in the turnover, a decision challenged by the appellant.

The court delved into the relevant provisions of the Act, particularly focusing on the definitions of "dealer," "turnover," and "sale price." The definition of a dealer includes any person engaged in buying, selling, or distributing goods, while turnover encompasses the amount of sale prices received by the dealer. "Sale price" is defined as the amount payable to a dealer for the sale of goods, including any sum charged for services related to the goods. The key question was whether sales tax collected could be considered valuable consideration for the sale of goods.

The court emphasized that under the Act, the liability to pay tax lies with the dealer, not the purchaser. While a dealer may pass on the tax burden to buyers by incorporating it into the price of goods, there is no provision allowing dealers to collect tax separately from buyers. The court highlighted the distinction between tax and price, emphasizing that the collection of tax by the dealer forms part of the consideration paid by the buyer.

Drawing on previous judgments, including George Oakes (Private) Ltd. v. State of Madras, the court reiterated that when a seller passes on tax liability to the buyer, the amount collected becomes part of the entire consideration paid by the buyer. The court also referenced the decision in Tata Iron and Steel Co. Ltd. v. State of Bihar, emphasizing that the primary liability to pay sales tax rests with the seller, and buyers are not obligated to pay tax in addition to the agreed sale price unless specified in the contract.

In considering the appellant's reliance on a Madras High Court decision, the court noted the absence of a similar provision in the Act and declined to delve into the correctness of that decision. Ultimately, the court dismissed the appeals, affirming that the sales tax collected by the dealer should be considered part of the sale price, leading to the inclusion of such tax in the turnover calculation.

In conclusion, the judgment provides a detailed analysis of the interpretation of the term "sale price" under the Madhya Pradesh General Sales Tax Act, emphasizing the legal framework governing the collection of sales tax by dealers and its impact on the determination of turnover.