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TMI Blog1998 (8) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... f the principals. 2.. Mr. C. Natarajan, learned Senior Counsel, narrated the facts of the cases with reference to O.P. No. 37 of 1996 in the case of the petitioners Tvl. J. Thomas and Co. (P) Limited, Coonoor, Nilgiris which are as follows: The petitioners effected sales of tea on behalf of tea estates in terms of conditions of sale circulated by the Coonoor Tea Trade Association. Sales are effected either by treaty or by auction. The petitioners acted as brokers for effecting sales of tea belonging to the principals and collected brokerage besides such other charges as agreed. The principals have to indemnify the petitioners for any liability arising out of the sale of tea under the Prevention of Food and Adulteration Act. In auctions, after declaring the highest bidder, the lot is knocked down and the contracts are issued identifying the purchaser along with that of the principals. The goods are sold under condition 17 at the principals' risk and 1 per cent brokerage is recovered under condition 18. Section 21 of Part III reads as under: "21-A. Sellers shall be registered as dealers under the Tamil Nadu General Sales Tax Act, 1959. The sale price shall be exclusive of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal to quash the orders, of the assessing authorities levying penalty under section 3-A of the Additional Tax Act and also to quash the circular of the Principal Commissioner and Commissioner of Commercial Taxes dated December 11, 1995. 4.. After narrating the events leading to the disputes, Mr. C. Natarajan, learned Senior Counsel, advanced the following arguments: At the outset he stated that additional tax is really a tax on the sale of goods and it is a tax on the aggregate of the sales effected during the year and then referred to the following passage in the decision of the Supreme Court in S. Kodar v. State of Kerala [1974] 34 STC 73: "The legal incidence of a tax on sale of goods under the Tamil Nadu General Sales Tax Act, 1959, falls squarely on the dealer. It may be that he can add the tax to the price of the goods sold and thus pass it on to the purchaser. But it is not necessary that the dealer should be enabled to pass on the incidence of the tax on sale to the purchaser in order that it might be a tax on sales of goods." He vehemently argued that additional sales tax is a tax upon sales and the dealer is disabled from passing on the incidence of tax to the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1963, a registered dealer may collect the tax payable by him on the sale of any goods from the person to whom he sells the goods. But as per sub-section (2)(b) of section 22, no registered dealer shall collect any sum purporting to be by way of tax in respect of the purchase of any goods, whether or not he is liable to pay tax on such purchase. Again as per sub-section (2) of section 3 of the Kerala Surcharge on Taxes Act, 1957, no dealer shall be entitled to collect the surcharge payable by him under sub-section (1) of section 3. What has been prohibited by sub-section (2) of section 22 of the Kerala General Sales Tax Act and sub-section (2) of section 3 of the Kerala Surcharge on Taxes Act, 1957 are collection of such tax or surcharge from the buyer, These provisions do not prohibit getting the purchase tax or surcharge remitted by the agent reimbursed by the principal on whose behalf such agent is effecting the purchases or sales in relation to which such purchase tax or surcharge as the case may be paid." As per this circular, there is no violation warranting penal action against auctioneers/agents who handled the goods of the tea estate principals. 6.. Thus, from the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Cardamom Planters' Association v. Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam reported in [1989] 75 STC 118 which is identical to the facts of this case, the Supreme Court has held as follows: "The difficulty that has arisen in regard to the surcharge stems principally from the requirement that the society has to pay it out of its funds and cannot reimburse itself either from its vendees or its principals. This difficulty has been further accentuated by the fact that, in regard to cardamom, its earnings are limited to a small commission which cannot be varied by it at its desire. These considerations cannot however justify a different interpretation as the statutory provisions are clear." 9.. Thus, the penalty levied for contravention of section 2(2) of the Additional Tax Act because of collection of additional sales tax from the principals is quite in order and in such circumstances there is no case to quash either the orders of the assessment passed by the assessing authorities or the instructions issued by the Principal Commissioner and Commissioner of Commercial Taxes dated December 11, 1995. 10.. Regarding computation of total taxable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision wherein "surcharge" collection is discussed is similar to additional sales tax payable under the Additional Tax Act. But, on perusing the judgment we find that the petitioners in that case objected to the levy of "surcharge" on the following grounds: "1. The general principle of law is that the liability of an agent is co-extensive with that of the principal and his liability to tax or surcharge, in respect of transactions put through on behalf of a principal, cannot be higher than that which the principal would have himself incurred had he directly sold the goods. 2.. It is contrary to the principle underlying rule 9(k) of the Kerala General Sales Tax Rules under which 'the turnover of sales or purchases made by a dealer through his agent in respect of which tax has been paid by the agent' is excluded from his taxable turnover. 3.. The assessee has been placed in a financial predicament because all that the assessee can get out of the sales is the commission which cannot exceed 1 per cent of the turnover and, since the statute has prohibited it from collecting any part of the surcharge from the purchasers or the principals, the society has to meet the surcharge li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court decision reported in State of Kerala v. Cardamom Planters' Association [1987] 67 STC 294. Before the Kerala High Court also, the petitioners contended that they are only agents who acted on behalf of the principals, that the liability of an agent is co-extensive with that of the principal, that if the principal is not liable to tax, the agent will not be liable hereto and that if a principal whose turnover is less than Rs. 30,000 is not liable to tax under section 5 of the Kerala Here italicised. General Sales Tax Act, 1963, such exemption from tax is to be allowed on the turnover of the agent also. However no plea that the dealer was prohibited from collection of "surcharge" from principals was raised before the High Court. Only before the Supreme Court, such a plea was advances so as to justify tile stand that the petitioners as agents should not be assessed on the entire turnover of principals to surcharge, but exemption has to be granted wherever the principals would not be liable to tax as if such sales have been assessed to tax directly. Therefore, the reliance placed on the decision reported in Cardamom Planters' Association v. Deputy Commissioner of Sales Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(g) or 19(1)(f)". (Underlined* for emphasis). Here italicised. 15.. Thus, the whole discussion in this decision of the Supreme Court revolves on the point that additional tax should not be passed on to the purchaser and should be borne by the seller-dealer out of his sale proceeds whether he includes the incidence of additional tax in the price structure or not and whether he makes profit or not. In such circumstances, when the Supreme Court has categorically held that additional tax has to be met out of sale proceeds of' the seller, the reimbursement of additional sales tax from out of the sale proceeds of the principals by way of reimbursement to the agents who acted on behalf of them in marketing the tea has to be held as not violative of sub-section (2) of section 2 of the Additional Tax Act in terms of the Supreme Court's judgment in the case of S. Kodar v. State of Kerala [1974] 34 STC 73. In short, the Additional Tax Act contemplates that the purchaser should not be burdened with additional sales tax and thus the prohibition is in regard to passing on the incidence of additional sales tax to the purchaser only in any form. Therefore, only the passing of additional sales t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax or additional tax. 18.. Thus, only the aggregate sales turnover of all the principals on whose behalf the agent sold tea is liable to tax and the statute has evolved a very simple procedure of assessing the aggregate turnover of the principals at the hands of the agent, However, when the aggregate turnover is assessed to sales tax, there is no difficulty for the agent as he can collect the sales tax from the purchasers and thus reimburse himself. But when it comes to the question of additional sales tax, the agent cannot collect it from the purchaser and the rate varies with reference to aggregate taxable turnover, though the taxable turnover of each of the principals may be assessable at 1.5 per cent additional sales tax, if assessed separately. When the aggregate taxable turnover of all principals put together is considered, definitely such turnover attracts rate of 2.5 per cent as additional sales tax as contended by the petitioners and only in such circumstances, the principals and agents have evolved a workable condition of contribution of 2.5 per cent towards additional sales tax liability in order to meet the liability arising out of selling the goods of several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial Taxes had no statutory authority to issue clarification regarding the rate of tax and matters connected with assessment. Therefore, the clarification is not binding even on the assessing authorities. In view of our findings that contribution or reimbursement of additional tax by principals to their agents to meet the liability arising out of sales of the products of the principals is riot collection of additional tax as contemplated in section 2(2) of the Additional Tax Act, the clarification dated December 11, 1995 of Commissioner of Commercial Taxes has no effect whatsoever and in such circumstances there is no need to pass orders quashing the non-statutory order. 21.. Regarding the contention of including the tea sales through agents in the total taxable turnover of the principals so as to arrive at the total taxable turnover for the purpose of determining the rate of additional sales tax, we find that the method of computation made by the assessing authority is quite in order, Rule 6(h) of the Tamil Nadu General Sales Tax Rules, 1959 gives deduction in respect of "the turnover of sales or purchases made by a dealer through his agent in respect of which tax has been ..... 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