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TMI Blog1953 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... this judgment), were and are being asked to pay the sales tax on their purchase turnover; that the said Association and its members, including the petitioner, wished to collect the said tax from the sellers or persons from whom they purchased and asked the Sales Tax Officer to render assistance for the collection of the tax; that the said Officer instead of rendering assistance, informed the petitioner and others, that they should not collect the tax from the agriculturists (from whom groundnut was purchased); that when approached, the Commissioner of Sales Tax also did not pay any heed to their request and took up the position that the sellers being agriculturists, were not liable to pay the tax and therefore the dealers were not entitled to collect the tax from them; it was alleged that the levy of the tax by the sales tax authorities was without jurisdiction and therefore a writ of certiorari in that effect be issued. The main points upon which the petitioner relied may be detailed as follows: (i) It was argued that if the sales by the agriculturists or producers of groundnuts were not to be taxed, then the transactions of sale should be exempt and the purchase value of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39] 1 S.T.C. 1; A.I.R. 1939 F.C. 1 at page 7(c). (3) [1953] 4 S.T.C. 133; A.I.R. 1953 S.C. 252 at page 260. Therefore, it is evident that the sales tax is a tax directed against the consumer. Another important fact to be kept in mind is that the petitioner and the other members of the Oil Mill Owners' Association have purchased and are purchasing the groundnuts for the purpose of extracting oil out of them. They are, therefore, either consumers of the commodity they purchased or producers or manufacturers of oil. The terms "consump- tion" and "consumer" have become the subject of discussion in the Supreme Court case cited above [viz., State of Bombay v. The United Motors (India) Ltd.(1)]. According to the Concise Oxford Dictionary, "consume" means-make away with; use up; eat, drink up; spend, waste; waste away; and "consumption" means using up; destruction; waste; amount consumed; and wasting disease. In my opinion, out of the many meanings given to "consume" and "consumption" in the Dictionary as above, the meaning applicable, in view of the facts of the case, is that "consume" in this particular context means "use up or utilise" and "consumption" means "using up". Naturally the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf by collecting it from some other person as the incidence of the sale tax must ultimately fall upon the consumer. Now I come to the argument advanced by the State, that sales by the growers or agriculturists are not intended to be taxed under the Act; and therefore tax cannot be collected from the agriculturists. In my opinion, the argument is not correct. Under the charging sections of the Act, (viz., Sections 3 and 4 of the Act), the "turnover" of a dealer is taxed. "Turnover" has been defined in Section 2(m): "'Turnover' means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration." The petitioner, in the present case, bought the ground- nuts as a dealer from the growers and some other people. There is nothing in this definition, to exclude the sales of groundnuts by the growers of the same to dealers who purchase them. In the Madras General Sales Tax Act of 1939, the word "turnover" has been defined in Section 2(i): "Section 2. (i) 'Turnover' means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover remains. The agriculturist grower does not engage himself in the business of selling but we cannot say the same thing with respect to a dealer who engages himself in doing the business of buying from an agriculturist grower and when such "purchase turnover" is taxed, there is nothing in the Act to show that it is contrary to its provisions. The State has the option to collect the tax from the dealer either on his "sales turnover" or "purchase turnover". There is nothing unlawful in making the "purchase turnover" taxable. The same may have been done with a view to facilitate the collection. The next question to be considered is whether the petitioner can collect the tax from his sellers to the limited extent, when his sales are from the agriculturist producers and the contention whether the Govern- ment cannot impose the tax before the same is collected by the dealer. It was argued that a dealer or casual trader, from whom the sales tax is collected, is merely an agent of the Government for collecting the tax and that he has got a right to reimburse himself and collect the tax from persons with whom he does his transactions. The power of a dealer to collect an amount b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of a subsequent sale. The idea that the tax can be collected by a dealer from his seller or from whom he purchases is basically and fundamentally contrary to the scheme of the Act. If the tax is to be collected by the producer of the commodity, it will no longer be a sales tax, but it will be an excise duty. Even in the case of ordinary commodities (goods), the dealer, who purchases the commodities for sale does not collect the sales tax from the persons from whom he purchases the goods, say for instance, cloth or stationery. It is at the time when the dealer sells and not purchases that he can collect the sales tax and reimburse himself. What the dealer had to pay out of his purse for his customer, the customer has again to pay into the dealer's purse: that is reimbursement,-vide the Concise Oxford Dictionary (1951), page 1026. It cannot be said that the dealer has paid some tax to Government out of his own pocket on behalf of the agriculturists sellers and that they should repay the same to him. In fact, the State charges the dealer and reimbursement is only an incidental convenience given under the Act to him (dealer) if he sells the commodity to some other person. The next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e members to collect the tax from their sellers was still unsettled, they were being press- ed to submit their returns showing purchase value of the groundnuts in their turnovers; a copy of the representation to the Sales Tax Officer, Warangal, was sent to the Commissioner, with a request to suspend the collections of the tax in view of the members being prevented from collecting the tax from their sellers, but in his reply of 23rd December, 1950, the Commissioner took up the position that the sellers being agricul- turists were not liable to pay the tax, and the members were not entitled to collect it from such sellers. As this letter neatly summarises the State's case against acceding to the demand of the petitioner, which has since been repeated in this Court, I shall quote here certain relevant passages from it: ".....I have to inform you that.....a dealer has no right to collect tax from an agriculturist on the sale of groundnuts, etc. on which pur- chase tax is leviable. Further the sale of agricultural produce grown by an agriculturist in his lands does not attract liability to tax under the existing provisions of the Act. The tax is levied on groundnuts, etc., on the turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugnant to the provisions of the Act and imposes unjustifiable burden upon him; so also the Government's collec- tion of the tax from him before he is in a position to know from whom he is entitled to recover and preventing him from the exercise of the right. The last ground has been added by an application for an amendment, which is dated 28th September, 1951, and is that the Hyderabad General Sales Tax Act, in so far as it authorises levy of sales tax on purchases of groundnuts, is ultra vires by reason of the prohibition under Article 286, clause (3), of the Constitution, as the groundnuts have been declared to be essential goods under sub-section (2) of Section 1 of the Essential Sup- plies (Temporary Powers) Act, which Act has been applied to Hyderabad, and the Hyderabad General Sales Tax Act has not been reserved for the consideration of the President, nor has it received his assent. It is clear that the last two grounds raise constitutional issues, and should not be adjudicated upon, unless I come to the conclusion that the first sales of the agriculturists of their produce are not exempted, and the petitioner can be legally restrained from collecting the tax from such seller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lect amounts by way of tax or taxes under the Act subject to the following conditions: (i) he shall not collect any amount or amounts by way of tax or taxes under the Act at a rate or rates exceeding the rate or rates specified in Section 3 or 4 or 6 or notified under sub-section (1) of Section 7; (ii) he shall pay in full the amount or amounts collected by him by way of tax or taxes to the Government on or before the 30th of April of the year succeeding that in which such collection is made. (2) The assessing authority may at any time call for and examine the accounts of either a registered dealer or a casual trader for the purpose of satisfying himself that the dealer or a casual trader as the case may be has paid in full the amount or amounts collected by him by way of tax or taxes, as required by condition (ii) of sub-rule (1). (3) If the assessing authority is satisfied that any amount or amounts collected by the dealer or a casual trader by way of tax or taxes has not been paid by him to the Government in any year as required by condition (ii) of sub-rule (1), the assessing authority shall issue a notice to the dealer or a casual trader in Form B-2 specifying therein the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Governor-General in Council v. Madras Province(2), that the distinction between the two, broadly speaking, is that the excise duty is leviable on a manufacture and production of articles, whereas sales tax is levied on the transaction of sale. Then the preamble of the Hyderabad General Sales Tax Act says that it is expedient to provide for the levy of a general tax on the sale of goods in the Hyderabad State. Also, Section 3 of the Act charges the tax at the rate of two pies in the rupee on so much of the turnover of the registered dealer or casual trader as is attributable to transactions in goods for the period mentioned in the section. The same is the position under Section 4 of the Act. It is, therefore, clear that both constitutionally and under the Hyderabad General Sales Tax Act, the tax is on transactions of sale. The turnover may be the sale or purchase turnover of a dealer; but it is a tax on the sale of goods. Therefore, when Section 11 allows recoup- ing evidently it contemplates recouping from the parties to the sale on which the tax is levied and not from a party to a further sale trans- action. This is further borne out by the Forms A-3 and A-6 of the rules fram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pres- sions means every transfer of property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge;" * * * * "(m) 'Turnover' means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration;" "Section 3. For the year opening on the 1st day of April, 1950, every dealer whose total turnover for the period from the 1st day of May, 1950, to the 31st day of March, 1951, is not less than Rs. 6,875, and every casual trader whatever be his total turnover for the said period shall, save as otherwise provided in this Act, pay- (1) a tax at the rate of two pies in the rupee on so much of his turnover for the said period as is attributable to transactions (excluding transactions performed in execution of a contract entered into before the commencement of this Act) in goods other than exempted goods; (2) an additional tax at the rate of six pies in the rupee on so much of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmentioned goods the turnover of a dealer for the purpose of these rules shall be the amount for which the goods are bought by the dealer. (a) Groundnut. (b) Bidi leaves. (c) Tarwar bark. (d) Til, Karad and Castor Seed." From the above quotations, it is obvious that the tax is not levied on sales of exempted goods, nor on the transactions as are notified under Section 7 as exempt. The tax is levied only on sales between a person and a dealer as defined by the Act, and on the turnover exceeding the statutory limits of a dealer which may be a sale or a purchase turnover. The definition of the "dealer" is important, otherwise his turnover is not taxed. To levy the tax the person must be engaged in the business of buying, selling or supplying goods, and if the activities of such a person cannot be properly called business, then his turnover is not liable to be taxed. This is also clear from the charging Sections 3 and 4, which only tax the turnovers of dealers. Now an agriculturist when selling the produces of his land can hardly be said to carry on the business of selling the commodities he produces. Indeed, the income from the first sale of produces of the agricultural lands is calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax from the applicant under sub-rule (2) of rule 5, I have next to decide whether the sub-rule should be held ultra vires, or whether we should merely restrain the State from taxing that part of the turnover of the applicant which consists of purchase value of groundnuts from agriculturists. It is obvious that groundnuts are not exempted commodity, and persons who are not agriculturists may sell them to the dealers. Sub-rule (2) of rule 5 in these circumstances would be within the scope of the Act. In these circumstances, I am of opinion that the test of the severability of enforcement should be applied. In the case of State of Bombay v. United Motors (India) Ltd.(1), his Lordship the Chief Justice of India has observed that in taxing statute severability of enforcement should be the test when questions relating to the unconstitutionality of the Act is raised. He says at page 263: "......Apart from the considerations set forth above which tend to support the constitutional validity of the Act, it was broadly contended before us that taxing statutes imposing tax on subjects divisible in their nature which do not exclude in express terms subjects exempted by the Constitution, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act. This association is said to carry on business inter alia of purchasing and selling goods (groundnuts). The members of this Association are "registered dealers" having got themselves registered as required by Sec- tion 10 of the Hyderabad Sales Tax Act, XIV of 1950. The petitioner alleged that in the course of his business he purchased, like other members, large quantities of groundnuts from various persons who are agriculturists and producers of this commodity; that the Sales Tax Officer of Warangal orally informed the members of the Association that they were liable to pay sales tax as "dealers" on the purchase turnover of groundnut purchas- ed by them under the provisions of rule 5, sub-rule (2), of the Sales Tax Act. As they did not collect the tax from the agriculturists, the mem- bers of the Association sought clarification from Sales Tax Officer on the question as to from whom and how they could recover the tax which they were made to pay to the Government. They further requested the Market Superintendent of Warangal to help them in the matter of collecting the tax from the agriculturists in order to reimburse themselves. These matters were referred to the Sales Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales by an agriculturist did not come within the purview of the Act as he was not a "dealer" as defined in the Sales Tax Act. This application came on for hearing before a Division Bench of this Court and having regard to the interpretation of the provisions of the Sales Tax Act and their validity and having regard to the fact that the determination of the questions involved in this petition affected the "dealers" as a class and would have a far-reaching effect, the Division Bench thought it advisable that the questions should be considered by a larger Bench and by its referring order dated 25th October, 1951, referred the whole case to a larger Bench. We heard the arguments of the advo- cate for the petitioner, the Advocate-General and the advocate for the department, in extenso. It would be desirable to dispose of the preliminary objection raised on behalf of the Government advocate first. The Government advocate urged on the general principle that where there was an adequate and efficacious remedy, the High Court would not ordinarily interfere under Article 226 of the Constitution. The general principle which is now well established is good so far as it goes. It would app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st day of May, 1950, to the 31st day of March, 1951, is not less than Rs. 6,875, and every casual trader whatever be his total turnover for the said period shall, save as otherwise provided in this Act, pay- (1) a tax at the rate of two pies in the rupee on so much of his turnover for the said period as is attributable to transactions (excluding transactions performed in execution of a contract entered into before the commencement of this Act) in goods other than exempted goods; (1) [1950] S.C.R. 566. (2) an additional tax at the rate of six pies in the rupee on so much of his turnover for the said period as is attributable to transactions (ex- cluding such transactions as aforesaid) in goods specified in Schedule II. 4.. For every subsequent year every dealer whose turnover for the year is not less than Rs. 7,500, and every casual trader, whatever be his turnover for the year, shall, save as otherwise provided in this Act, pay- (1) a tax at the rate of two pies in the rupee on so much of his turnover for the year as is attributable to transactions in goods other than exempted goods; (2) an additional tax at the rate of six pies in the rupee on so much of his turnover for the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of two kinds, "direct" and "indirect". A direct tax is one which is collected from the person who, it is intended, should pay while in an indirect tax, tax is demanded from one person in the expectation and with the intention that he shall indemnify himself at the expense of another: Eri Beach Co., Ltd. v. Attorney-General of Ontario.(1) This tax is an indirect tax and in the case of an indirect tax there is always the possibility of the person paying the same being indemnified. Sales Tax and customs duty are such where the purchaser or merchant may be reimbursed. The main ground of attack in this case is that the dealer is not in a position to realise it from the former. It cannot be denied that this is a consumer tax. Being an indirect tax it must go forwards and not backwards. The dealer could always get it back from his purchaser. Although ordinarily by its nomenclature it may appear that the sales tax is a tax on a transaction of sale, the tax could be levied on purchase transactions as well. Item No. 54 of List II of the Constitution would show that the State is authorised to legislate as regards the levy of tax on sales as well as pur- chases. Could rule 5, sub-rule (2), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale point or at the purchase point, having regard to the nature of the commodity taxable, keeping in mind the facility of collection and other considerations. The Act only prohibits the levying of tax on the buyer as well as on the seller in respect of the same transaction. Vide proviso to Section 5 of the Act which provides that (i) the buyer and the seller shall not both be taxed in respect of the same transaction of the sale; (ii) where a dealer or casual trader is taxed as the buyer of any goods he shall not be taxed in respect of a subsequent sale by him of the same goods. One person alone could be taxed and as to who should be taxed is a matter left to be determined by the Government. With regard to certain commodities Government has preferred to levy the tax at the purchase point, as pro- vided for in sub-rule (2) of rule 5. This does not offend any provisions of the Sales Tax Act, for the tax is being levied from a dealer alone. The policy of the law appears to be to exempt a sale by a grower of produce from the payment of the tax. The agriculturist merely grows the crop and sells it. He cannot be regarded as one engaged in buying and selling in the course of trade or busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. For the purpose of a convenient collection of the tax, the Govern- ment could select the objects to be taxed and also decide about the proper mode of taxation. Section 7 of the Act gives power to the Government to reduce, modify or exempt a tax in respect of a specified class of goods and also the whole or any part of the turnover of any specified class of persons. The production of groundnut is exempted. Agriculturist is exempt because he does not engage in the business of buying, selling or supplying goods. Classification is permitted for the purpose of fixing the amount or incidence of the tax, provided all persons who are subjected to such legislation within the classification are treated with equality and the classification is based on a ground of difference having a substantial relation to the object of the Legislature: Lucy Wardstebbins v. Ray L. Riley(3). It cannot be said that there has been a deliberate discrimination or singling out, for all those persons who deal in groundnut and beedi are (1) [1951] S.C.J. 478. (3) (1924) 268 U.S. 844. (2) (1918) 248 U.S. 152. treated alike and all groundnut transactions are dealt with alike, and they are taxed on the purchase tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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