1955 (4) TMI 31 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Proper construction of Rule 16(3) of the Turnover and Assessment Rules under the Madras General Sales Tax Act.
2. Tax liability on the sale turnover of tanned hides and skins by licensed tanners.
3. Interpretation and application of Rule 4(1) and Rule 4(2)(c) of the Turnover and Assessment Rules.
4. Single point taxation under Section 5(vi) of the Madras General Sales Tax Act.

Issue-wise Detailed Analysis:

1. Proper construction of Rule 16(3) of the Turnover and Assessment Rules under the Madras General Sales Tax Act:
The primary issue in this case revolves around the interpretation of Rule 16(3). The assessees argued that under Rule 16(3), sales of tanned hides and skins by licensed dealers are exempt from taxation provided that the hides or skins have been tanned in a tannery which has paid the tax leviable under the Act. The term "tannery" should be understood as "tanner," implying that if no tax is payable on the purchase of raw hides (because the transaction occurred outside the State or is exempt), the tanner cannot be said to have "not paid the tax leviable under the Act." The State contended that the rule assumes a tax liability and only provides for a deduction of a previously taxed turnover.

2. Tax liability on the sale turnover of tanned hides and skins by licensed tanners:
The assessing authority argued that since the assessees purchased raw hides outside the State and did not pay tax at the purchase stage, they must pay tax on the sale turnover of tanned hides. The Tribunal upheld this view. However, the court found that the reasoning of the Tribunal was erroneous. The court held that the single point for taxation of hides and skins is to be gathered only from Rule 16, and Rule 16(3) exempts sales by licensed tanners who have paid the tax leviable under the Act on their purchase turnover.

3. Interpretation and application of Rule 4(1) and Rule 4(2)(c) of the Turnover and Assessment Rules:
The assessees argued that Rule 4(2)(c) applies only to purchases made within the State and does not impose a tax liability on transactions outside the State. The Tribunal's view that Rule 4(1) imposes a tax on every sale by a tanner was rejected. The court clarified that Rule 4(1) does not impose a tax liability on hides and skins, which are liable to tax only at a single point as prescribed by the rules. The Full Bench of the court in Hajee Abdul Shukoor Company v. The State of Madras supported this interpretation.

4. Single point taxation under Section 5(vi) of the Madras General Sales Tax Act:
The court emphasized that under Section 5(vi), hides and skins are liable to tax only at a single point in the series of sales as prescribed by the rules. The court found that the rules did not fix a single point for taxation of sales by licensed tanners who have not paid tax on their purchases because such purchases are not subject to taxation under the Act. Therefore, imposing a tax on the sale turnover of the assessees would violate the specific direction in Section 5(vi).

Conclusion:
The court held that the sale turnover of the assessees was not liable to tax under the provisions of the Madras General Sales Tax Act. The revision petition succeeded, and the order of the Tribunal against the assessees was set aside. The assessees were entitled to their costs, with a counsel's fee of Rs. 100. However, there was no dispute that the assessee was liable to tax on a turnover of Rs. 2,118-5-9, representing sales of tannery refuse, and the tax was payable on this item.

Petition allowed.