1965 (2) TMI 91 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of the Anakapalle Co-operative Marketing Society to sales tax.
2. Legality of the sales transactions in contravention of the Gur Control Order.
3. Definition and applicability of the term "dealer" under the Madras General Sales Tax Act.
4. Whether jaggery qualifies as agricultural produce under the Act.
5. Violation of the conditions of the licence issued under section 8 of the Madras General Sales Tax Act.

Detailed Analysis:

1. Liability of the Anakapalle Co-operative Marketing Society to Sales Tax:
The Anakapalle Co-operative Marketing Society was assessed for sales tax on turnovers of Rs. 19,21,580-6-4 and Rs. 13,11,188-5-2 for the years 1950-51 and 1951-52, respectively. The society, consisting of over 1,000 jaggery-producing ryots, sold jaggery at prices higher than those fixed under the Gur Control Order. The society maintained two sets of accounts to conceal the excess prices. The Commercial Taxes Department discovered these clandestine accounts and brought the excess prices to tax, finding that the society violated the conditions of its licence and was liable to sales tax under section 3 of the Madras General Sales Tax Act.

2. Legality of the Sales Transactions in Contravention of the Gur Control Order:
The society argued that it could not be deemed to have carried on illegal business in contravention of the Gur Control Order. However, the Tribunal rejected this argument, stating that the liability to taxation was not affected by the illegality of the transactions. The Supreme Court upheld this view, stating that the business of earning commission on sales in contravention of the Gur Control Order did not cease to be "business" within the meaning of section 51 of the Madras Co-operative Societies Act. The court emphasized that tax is not confined to lawful business only, citing precedents such as Canadian Minister of Finance v. Smith and Lindsay, Woodward and Hiscox v. Commissioners of Inland Revenue.

3. Definition and Applicability of the Term "Dealer" under the Madras General Sales Tax Act:
The society contended that it was not a "dealer" under the Act, which defined a dealer as "any person who carries on the business of buying or selling goods." The society argued that the sales were effected directly by the owners of the jaggery, not by the society. However, the Tribunal found that the sales were indeed effected by the society in open auction, and the society realized the full prices and commission. The Supreme Court's decision in M/s. Raghubar Mandal Harihar Mandal v. State of Bihar reinforced that the High Court must proceed on the statement of facts by the Tribunal. Therefore, the society was deemed a dealer, and the transactions were sales within the meaning of the Act.

4. Whether Jaggery Qualifies as Agricultural Produce under the Act:
The society argued that jaggery was agricultural produce and should be excluded from the turnover under section 2(i) of the Act. This contention was rejected, as it was opposed to the Division Bench ruling in K.P. Vaidyanatha Iyer v. The State of Madras, which held that the sale of jaggery was not the sale of agricultural produce within the meaning of the definition of "turnover" in section 2(i) of the Act.

5. Violation of the Conditions of the Licence Issued under Section 8 of the Madras General Sales Tax Act:
The society contended that there was no violation of the conditions of the licence. This argument was based on the pleas that the society was not a dealer, the transactions were not sales by the society, and the society had not itself carried on the business. As these pleas were found untenable, the contention that there was no violation of the conditions of the licence also failed. The Tribunal identified the specific conditions of the licence that were contravened, and it was not argued that these conditions were not violated based on the facts found by the Tribunal.

Conclusion:
The two Tax Revision cases were dismissed, and the Anakapalle Co-operative Marketing Society was held liable for sales tax on the turnovers for the years in question. The court upheld the Tribunal's findings that the society was a dealer, the transactions were sales, and the conditions of the licence were violated. The petitions were dismissed with costs, and an advocate's fee of Rs. 150 was awarded.