1969 (5) TMI 52 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether sales made through commission agents, on which sales tax was paid by the agents, could legally be included in the gross turnover of the principal for determining sales tax liability?

Analysis:
The judgment by the Allahabad High Court addressed the issue of whether sales made through commission agents, where sales tax was paid by the agents, should be included in the gross turnover of the principal for determining sales tax liability. The case involved an assessee dealing in foodgrains who claimed exemption from tax under a notification stating no tax would be payable if the turnover did not exceed a specified amount. The Sales Tax Officer included sales made through commission agents in the assessee's turnover, leading to an appeal. The Assistant Commissioner (Judicial) Sales Tax allowed the appeal, stating that sales made through commission agents should not form part of the assessee's turnover, following a previous court decision. The Commissioner of Sales Tax applied for revision, which was dismissed by the Additional judge (Revisions) Sales Tax. The reference was made to the High Court to determine the legality of including sales made through commission agents in the principal's turnover for tax calculation.

The court analyzed the relevant provisions of the U.P. Sales Tax Act as amended in 1959. Section 3 of the Act mandates tax payment based on turnover, with a proviso exempting dealers below a specified turnover limit. The notification in question was issued in reference to this proviso. The court highlighted the distinction between gross turnover and net turnover, with Rule 8 determining tax liability based on gross turnover and Rule 44 computing tax on net turnover after deductions. The court emphasized that for assessing tax liability, the gross turnover is crucial, and if it exceeds the prescribed limit, the Act's provisions come into effect.

The court examined the explanation to Section 3, stating that when tax is paid by a commission agent on behalf of the principal, the principal is not liable for tax on that turnover. The court referenced the definition of a dealer, including commission agents as deemed dealers. It further cited an explanation added by the 1959 Amendment Act, clarifying that commission agents are treated as dealers for tax purposes. The court agreed with a previous decision that turnover assessed and taxed by commission agents should not be considered in the principal's gross turnover for tax calculation.

Ultimately, the court answered the reference question in the negative, stating that sales made through commission agents, on which tax was paid by the agents, should not be included in the principal's gross turnover for determining sales tax liability. The assessee was awarded costs, and the reference was answered accordingly.