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1958 (4) TMI 52 - SC - VAT and Sales TaxWhether under the Hyderabad General Sales Tax Act 1950 a dealer as defined in it purchasing ground-nuts from an agriculturist is liable to pay tax on the purchase it being conceded that the petitioner is such a dealer? Held that - Any Act of Parliament declaring certain goods to be essential for its own purposes as Act XXIV of 1946 does is not an Act within the contemplation of Article 286(3). The Parliamentary Act there contemplation has to be passed in exercise of the powers contained in it and must clearly be referable to it. In fact such an Act was later passed by Parliament. That was The Essential Goods (Declaration and Regulation of Tax on Sale or Purchase) Act LII of 1952 which came into force on August 9 1952. Its preamble states it to be an Act to declare in pursuance of clause(3) of Article 286 of the Constitution certain goods to be essential for the life of the community and section 3 sets out substantially the provisions of that clause of Article 286 of the Constitution. It cannot therefore be contended that in view of Article 286(3) no tax can be levied on the sale of a commodity declared essential by Act XXIV of 1946. We may add that Act LII of 1952 is not available to the appellant either for it had not been passed at the date when the levy of the tax objected to in this case was made. Appeal dismissed.
Issues Involved:
1. Liability to pay tax on the purchase of ground-nuts by a dealer from an agriculturist under the Hyderabad General Sales Tax Act, 1950. 2. Right of the dealer to collect tax from the agriculturist. 3. Nature of sales tax as an indirect tax. 4. Applicability of Article 286(3) of the Constitution concerning essential commodities. Issue-wise Detailed Analysis: 1. Liability to Pay Tax on Purchase of Ground-Nuts: The primary issue was whether a dealer purchasing ground-nuts from an agriculturist is liable to pay tax under the Hyderabad General Sales Tax Act, 1950. The appellant argued that a purchase from an agriculturist is outside the Act and cannot be taxed. The court noted that sections 3 and 4 of the Act levy tax on the turnover attributable to transactions in goods other than exempted goods, and ground-nuts were not exempted. The court assumed for the appeal that an agriculturist is not a dealer. However, it concluded that sections 3 and 4 do impose a tax on a purchase by a dealer from an agriculturist. The tax is on the turnover, which includes the aggregate amount for which goods are bought or sold. Rule 5(2) of the Rules framed under the Act specifies that in the case of ground-nuts, the turnover shall be the amount for which they were bought by the dealer. Thus, the dealer is liable to pay tax on the purchase of ground-nuts from an agriculturist. 2. Right of the Dealer to Collect Tax from the Agriculturist: The appellant contended that as a registered dealer, he was entitled under section 11 of the Act and rule 10 of the Rules to collect the tax from the agriculturist sellers. The court clarified that section 11 authorizes a dealer to collect an amount by way of tax subject to the conditions and restrictions prescribed by the rules. Since an agriculturist, not being a dealer, has no liability to pay tax under the Act, the dealer has no right to collect any tax from the agriculturist. The respondents' view that the appellant had no right to collect any tax from the agriculturist was upheld. 3. Nature of Sales Tax as an Indirect Tax: The appellant argued that sales tax is essentially an indirect tax and cannot be demanded without allowing the dealer to recoup himself by collecting the tax from the persons with whom he deals. The court referred to the Tata Iron & Steel Co. Ltd. v. The State of Bihar case, which established that a sales tax need not be an indirect tax and that a tax can be a sales tax even if the primary liability is on a person without giving him the power to recoup the tax amount from another party. The court did not find it necessary to address whether the appellant could recoup the tax from subsequent sales, as the primary liability for the tax was on the appellant. 4. Applicability of Article 286(3) of the Constitution: The appellant argued that ground-nuts, being declared an essential commodity by Parliament, were exempt from tax under Article 286(3) of the Constitution. The court noted that Article 286(3) was later repealed and required that no state law imposing a tax on essential goods would have effect unless it received the President's assent. The Essential Supplies (Temporary Powers) Act, 1946, was extended to Hyderabad on August 17, 1950, and declared ground-nuts as an essential commodity. However, the court held that the declaration under the 1946 Act was not a law within the meaning of Article 286(3) because it was not made for the purposes of that Article. The court emphasized that the law declaring goods essential under Article 286(3) must be passed after the Constitution came into force. The Essential Goods (Declaration and Regulation of Tax on Sale or Purchase) Act, LII of 1952, was cited as an example of such a law. Therefore, the Hyderabad General Sales Tax Act was not affected by Article 286(3). Separate Judgment by Bose, J.: Bose, J. disagreed with the majority's distinction between an "essential commodity" under the Essential Supplies (Temporary Powers) Act, 1946, and "goods essential for the life of the community" under Article 286(3). He argued that once the 1946 Act was applied to Hyderabad by Parliament, it became a Parliamentary enactment, and the declaration of essential commodities in that Act should be considered a Parliamentary declaration within the meaning of Article 286(3). He opined that the law taxing ground-nuts was hit by Article 286(3) once the 1946 Act was applied to Hyderabad. Therefore, he would have allowed the appeal. Order: The appeal was dismissed with costs in accordance with the majority opinion.
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