1955 (3) TMI 18 - HC - VAT and Sales Tax

Issues Involved:
1. Scope and function of rules 4 and 16 under the Madras General Sales Tax Act.
2. Tax liability of a licensed tanner purchasing untanned hides and skins from an unlicensed dealer.
3. Interpretation of relevant provisions of the Madras General Sales Tax Act and rules thereunder.
4. Determination of turnover and tax liability under the Act.
5. Validity of rule 16(5) and its implications.

Issue-wise Detailed Analysis:

1. Scope and Function of Rules 4 and 16 under the Madras General Sales Tax Act:
The judgment discussed the scope and function of rules 4 and 16 in the context of taxation of untanned hides and skins. Rule 4(2) specifies that the gross turnover for certain commodities, including untanned hides and skins bought by a licensed tanner, shall be the amount for which the goods are bought. Rule 16(2) stipulates that no tax shall be levied on the sale of untanned hides or skins by a licensed dealer except at the stage when they are sold to a tanner or for export outside the State. The court emphasized that rule 16(2) is the crucial rule determining the points at which tax on hides and skins is levied.

2. Tax Liability of a Licensed Tanner Purchasing Untanned Hides and Skins from an Unlicensed Dealer:
The core question referred to the Full Bench was whether a licensed tanner purchasing untanned hides and skins from an unlicensed dealer is liable to be taxed on his turnover under rule 16(2) or any other provision of the Madras General Sales Tax Act. The court concluded that the tax liability under rule 16(2)(i) arises only when there is a sale of untanned hides and skins by a licensed dealer to a licensed tanner who tans the same. Therefore, purchases of untanned hides and skins by tanners from unlicensed dealers are not within the taxing provisions.

3. Interpretation of Relevant Provisions of the Madras General Sales Tax Act and Rules Thereunder:
Section 3 of the Act is the principal charging provision, imposing a tax on the total turnover of every dealer. Section 5(vi) provides for single-point taxation of hides and skins. The court held that rule 4(2) is not the fixation of a single point within section 5(vi) but is designed to determine whether the buyer or the seller shall be liable to be taxed. The single point for taxation is fixed and liability established only under rule 16.

4. Determination of Turnover and Tax Liability under the Act:
The court noted that rule 15(1) specifies that the provisions of rules 15 and 16 apply to dealings in hides and skins by licensed dealers alone. Rule 16(2) further clarifies that in respect of dealings in hides and skins, there shall be no taxation at successive points but only at two mutually exclusive points: when goods are sold to a tanner in the State or for export outside the State. The court emphasized that the dealings referred to in rule 16 are those by licensed dealers.

5. Validity of Rule 16(5) and Its Implications:
The court mentioned that rule 16(5), which provides for multi-point taxation for unlicensed dealers, was held to be ultra vires by this Court and affirmed by the Supreme Court. However, this point was not directly relevant to the present case, which involved a licensed dealer. The court concluded that rule 16(5) could not have any bearing on the transactions of licensed dealers purchasing from unlicensed dealers.

Conclusion:
The Full Bench answered that in computing the purchase turnover of a licensed tanner, only the sales to him from licensed dealers could be included. Consequently, purchases from unlicensed dealers are not liable to be included in the taxable turnover of the assessee. The court set aside the order of the Tribunal that included purchases from Bangalore and Bombay in the turnover of the assessee since these were from unlicensed dealers. The revision was partly allowed, with no order as to costs.

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