1953 (9) TMI 16 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of dealers to pay sales tax on purchase turnover from agriculturists.
2. Right of dealers to collect tax from sellers.
3. Constitutionality of Rule 5(2) under Article 14 of the Constitution.
4. Adequacy of alternative remedies.

Detailed Analysis:

1. Liability of Dealers to Pay Sales Tax on Purchase Turnover from Agriculturists:
The petitioner, a member of the Warangal Sabha Oil Mill-Owners' Association, argued that as registered dealers under the Hyderabad General Sales Tax Act, they were being asked to pay sales tax on their purchase turnover of groundnuts from agriculturists. The petitioner contended that if sales by agriculturists were not taxed, then the purchase value of such transactions should not be included in their purchase turnover. The court, however, disagreed, stating that under the charging sections of the Act, the "turnover" of a dealer is taxed, and there is no provision in the Act to exclude the sales of groundnuts by agriculturists from the dealer's purchase turnover.

2. Right of Dealers to Collect Tax from Sellers:
The petitioner claimed that if they were liable to pay tax on the purchase turnover, they should be entitled to collect the tax from their sellers, including agriculturists. The court noted that Section 11 of the Act allows a registered dealer to collect tax, but it does not make the payment of tax by the dealer dependent on prior collection from sellers. The court emphasized that the tax is intended to be collected at the point of sale to the consumer, and the idea of collecting tax from the seller (agriculturist) contradicts the scheme of the Act. The court concluded that the dealer, being the consumer in this context, cannot collect the tax from the agriculturist.

3. Constitutionality of Rule 5(2) under Article 14 of the Constitution:
The petitioner argued that Rule 5(2) of the Act, which taxes the purchase turnover of certain commodities, including groundnuts, contravened Article 14 of the Constitution by being discriminatory. The court held that the government has the power to make reasonable classifications for tax collection purposes. The classification of taxing purchase turnover for certain commodities was deemed reasonable and not discriminatory. The court also applied the principle of severability, stating that even if part of the rule was unconstitutional, it does not invalidate the entire rule. The court found no invidious distinction between different classes of dealers, as all dealers dealing in the specified commodities are treated alike.

4. Adequacy of Alternative Remedies:
A preliminary objection was raised that the petitioner should not be granted writs of certiorari and mandamus as there were other efficacious remedies available. The court dismissed this objection, noting that the petitioner had already exhausted other remedies, and the issue at hand involved the interpretation of the Sales Tax Act, which warranted a decision by the highest court in the state. The court emphasized that in cases involving taxing statutes, immediate clarification is necessary to guide the taxing authorities and prevent unnecessary litigation.

Conclusion:
The court dismissed the petition, holding that the petitioner is liable to pay sales tax on the purchase turnover of groundnuts from agriculturists and is not entitled to collect the tax from the sellers. The court also upheld the constitutionality of Rule 5(2) under Article 14 of the Constitution, finding no discrimination in the classification of taxing purchase turnover for certain commodities. The court rejected the preliminary objection regarding the adequacy of alternative remedies, emphasizing the need for immediate judicial clarification in taxing statute cases.