1957 (9) TMI 38 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of a licensed tanner to pay sales tax on purchases from an unlicensed dealer.
2. Liability of a licensed dealer to pay sales tax on purchases for export outside the State from an unlicensed dealer.

Detailed Analysis:

1. Liability of a Licensed Tanner to Pay Sales Tax on Purchases from an Unlicensed Dealer
The primary issue is whether a licensed tanner is liable to pay sales tax on the amount for which hides and skins were bought by him from an unlicensed dealer. The interpretation of the relevant provisions of the Madras General Sales Tax Act and the Madras General Sales Tax Rules, particularly rules 4, 15, and 16, is crucial.

A Division Bench of the Madras High Court in Syed Mohammad & Co. v. State of Madras concluded that under rule 4(2)(c), a licensed tanner purchasing untanned hides and skins from an unlicensed dealer is liable to tax on his purchase turnover. Rule 16(2)(i) provides for a tax being levied on the tanner, whether licensed or unlicensed, when the sale is by a licensed dealer. However, if the sale is by an unlicensed dealer to a licensed tanner, rule 4(2)(c) applies, and the purchaser pays the tax.

Conversely, a Full Bench of the Madras High Court in Hajee Abdul Shukoor & Co. v. The State of Madras held that section 5(vi) mandates a single point of taxation in a series of sales, and rule 4(2) is designed to determine whether the buyer or seller is liable to be taxed. The single point is fixed under rule 16, and only the sale of untanned hides and skins by a licensed dealer to a licensed tanner gives rise to a tax liability. Purchases by tanners from unlicensed dealers are not within the taxing provisions.

The Full Bench of the Andhra Pradesh High Court agreed with the latter view, emphasizing that rule 16(2) fixes the stage and nature of transactions liable to tax, which applies only to sales between licensed dealers. Therefore, a licensed tanner purchasing from an unlicensed dealer is not liable to pay sales tax on such purchases.

2. Liability of a Licensed Dealer to Pay Sales Tax on Purchases for Export Outside the State from an Unlicensed Dealer
The second issue is whether a licensed dealer who purchases hides and skins for export outside the State from an unlicensed dealer is liable to tax on the purchase amount.

The Division Bench in Syed Mohammad & Co. v. State of Madras stated that under rule 4(2)(d), when a licensed dealer purchases untanned hides and skins for export, the purchase amount is included in his turnover, and he is taxed. Rule 16(2)(ii) specifies that the last purchaser, whether licensed or unlicensed, is liable to pay tax if he purchases from a licensed dealer. If the purchase is from an unlicensed dealer, rule 4(2)(d) applies, and the licensed dealer pays the tax.

However, the Full Bench in Hajee Abdul Shukoor & Co. v. The State of Madras clarified that rule 16(2)(ii) follows the same pattern and does not need separate consideration. The liability to tax is established only under rule 16, and purchases from unlicensed dealers by licensed dealers for export are not within the taxing provisions.

The Full Bench of the Andhra Pradesh High Court supported this interpretation, stating that the concession of single point taxation applies only to transactions between licensed dealers. Rule 16(2) fixes the stage and nature of transactions liable to tax, applicable only to sales between licensed dealers. Hence, a licensed dealer purchasing for export from an unlicensed dealer is not liable to pay sales tax on such purchases.

Conclusion:
Both questions were answered in the negative by the Full Bench of the Andhra Pradesh High Court. The court held that neither a licensed tanner nor a licensed dealer purchasing for export from an unlicensed dealer is liable to pay sales tax on the purchase amount. This decision aligns with the Full Bench ruling in Hajee Abdul Shukoor & Co. v. The State of Madras, emphasizing that the single point taxation scheme applies only to transactions between licensed dealers. The revision petitions were dismissed with costs, following the Full Bench's opinion.