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TMI Blog1968 (9) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... ducting the same from the advance tax paid, the refund of the excess of ₹ 2,257.33 p. was directed by the assessing authority. An objection was raised before the assessing authority as to the vires of section 5-A of the Act, but the said authority negatived the objection observing that such an objection was of no avail before an authority constituted under the Act, and that, therefore, he was unable to give any relief in that regard. The same objection was raised on appeal before the Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal, but with the same result. The petitioner has, thereupon, filed the above writ petition for a writ of certiorari for quashing the assessment order in so far as it relates to the levy of the per cent. of additional tax under section 5-A of the Act. The challenge to its validity is made mainly on two grounds: (1) that section 5-A of the Act is beyond the legislative competence of the State Legislature as the said provision does not fall within entry 54 of List II of the Seventh Schedule of the Constitution; and (2) that section 5-A is discriminatory in its scope and effect, and that it violates Article 14 of the Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determined only with reference to the provisions of section 5-A of the Act. His submission is that the taxable entity or event cinder section 5-A is not the individual sale or purchase but the turnover of a dealer reaching rupees three lakhs or more. Before we deal with the aforesaid contentions, it is appropriate that we should read the relevant provisions of the Act for a proper appreciation of the points raised. The definition of sale' omitting the portions not relevant for the purpose of this case, is as follows: 2. (n) 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or buttress, for cash, or for deferred payment, or for any other valuable consideration, and includes a transfer of property in goods involved in the execution of a works contract or in the supply or distribution of goods by a society including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods. Total turnover' and turnover are defined in section 2(r) and (s) as follows: (r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , at the rates and only at the point of the purchase specified as applicable thereto, effected in the State by the dealer purchasing them, on his turnover of purchase in each year relating to such goods irrespective of the quantum of turnover. (4) For the purpose of this section and the other provisions of this Act, the turnover on which a dealer shall be liable to pay tax shall be determined after making such deductions from his total turnover, and in such manner as may be prescribed. (5) The taxes under this section shall be assessed, levied and collected in such manner, as may be prescribed: Provided that- (i) in respect of the same transaction, the buyer or the seller, but not both, as determined by such rules as may be prescribed, shall be taxed; (ii) where a dealer has been taxed in respect of the purchase of any goods, in accordance with the rules referred to in clause (i) of this proviso, he shall not be taxed again in respect of any sale of such goods effected by him. Section 5-A which is impugned in these petitions, is as follows: 5-A Levy of additional tax on turnover-Every dealer who is liable to pay tax under section 5 shall, in addition to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urth naya paisa (now paisa) on every rupee of the turnover is prescribed in respect of dealers having a total turnover of rupees three lakhs or more. The mere fact that the additional tax of one-fourth naya paisa is provided in an independent section of the Act, does not make it any the less a tax on the sale transaction. just as dealers having a total turnover of less than ₹ 10,000 are exempt from paying any sales tax, dealers having a total turnover of less than rupees three lakhs are exempt from paying the additional tax leviable under section 5-A. An argument has been raised upon the language of the marginal notes of the two sections 5 and 5-A. It is contended that the marginal note of section 5 is levy of tax on sales or purchases of goods , while the marginal note for section 5-A is levy of additional tax on turnover . It is submitted that the taxable event is the sale or purchase of goods under section 5 while that under section 5-A it is the turnover. It is an established principle of interpretation of statutes that when the words used in the sections of the Act are clear and unambiguous the marginal notes cannot control the construction of the section. Even otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point at which the turnover reaches rupees three lakhs or more of a particular dealer. Therefore it is the volume of the trade that is taken as the criterion for imposing this additional tax and not the individual sale or purchase. We have already held that the said contention cannot be supported on the basis of the plain language of the section itself. Mr. Sastri tries to support his contention on the basis of a decision of the Patna High Court reported in Bihar Bolts, Rivets Engineering Works Ltd., In re [1959] 10 S.T.C. 578., where Sahai, J., referred to the important points of difference between the Bihar Sales Tax Act and the Income-tax Act and observed as follows: Firstly, income-tax for one year called the assessment year, is assessed on the income of the previous year, called the accounting year. Sales tax, on the other hand, becomes liable to be paid immediately after each sale is effected though, for the facility of computation and payment of tax, provision has been made for the filing of returns at the expiry of each quarter. Secondly, rates of income-tax vary in accordance with the amount of income whereas the amount of sales tax does not vary on the amount of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: Strictly, a turnover tax appears to be the correct description of a tax, usually calculated in the form of a percentage, on the gross receipts of wholesalers or of retailers or of both, and in some countries also on receipts in respect of services. It is however sometimes included under the more general name of sales tax, and it is evident from the various modern writers who have dealt with the subject and to whose works we were referred [Findlay Shirras, Science of Public Finance (3rd Edition 1936), Vol. II, Ch. 25; Comstock, Taxation in the Modern State, Ch. 8], that the latter expression is often used as a convenient name for a number of taxes ranging from turnover taxes to taxes on the retail sale of specified classes of goods; the so-called sales taxes which have been imposed by a large number of the State Legislatures in the United States seem to be often of the latter variety. Sri Anantha Babu also invited our attention to the observations occurring at the bottom of page 73 where his Lordship Sulaiman, J., observed as follows: It is thus obvious that a turnover tax or a sales tax is not by any means co-extensive with 'tax on the sale of goods'. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else. It is one tax, not a collection of taxes essentially distinct. In Ralla Ram v. Province of East Punjab A.I.R. 1949 F.C. 81., Fazli Ali, J., who spoke for the Court, observed at page 87 in para. 17, as follows: In the first place, we have to look into the charging section of the statute, because as was pointed out in Provincial Treasurer of Alberta and Another v. C. E. Kerr and Another [1933] A.C. 710., the identification of the subjectmatter of the tax is only to be found in that section. Sri Anantha Babu relying on the passages mentioned above, contends that in judging the nature of the tax imposed under section 5-A it is only the provisions of that section that have to be looked into, as according to him, it is the charging section with regard to additional levy where the turnover of a dealer is rupees three lakhs or more. The learned Government Pleader submits that section 5-A was introduced by the Amendment Act 16 of 1963 and that section 5-A is merely an ancillary provision and not an independent charging section. The section does not bring about any change in the subject-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be imposed under section 5-A partake of the same character, viz., a tax on sale of goods or purchase falling within entry 54 of List II. The learned Government Pleader contends that the limited question that falls for consideration here is as to the true and correct interpretation of section 5 A and once it is established that it is a tax on sale or purchase of goods which squarely falls within entry 54 of List 11 there is no want of legislative competence in enacting section 5-A. The learned Government Pleader further contends that the use of the expression turnover or the imposition of varying rates of tax in respect of different turnovers does not alter the character or the nature of the tax. In this context, he relies upon a decision reported in Corporation of Calcutta v. Liberty Cinema A.I.R. 1965 S.C. 1107 In that case, Sarkar, J., as he then was, speaking for the majority, observed at page 1117 as follows: The contention of the Corporation that fixation of rates is not an essential part of legislation would seem to be supported by several judgments of this Court to some of which we now proceed to refer. He further submits that the imposition of different rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression taxes on the sale of goods though entry 54 of List II of the Seventh Schedule of the Constitution used the expression taxes on sale or purchase of goods . The material provision which their Lordships had to consider in the aforesaid case is similar to the expression used in entry 54 and the observations made therein apply with full force in construing the provisions of section 5-A. In State of Bombay v. United Motors (India) Ltd.[1953] 4 S.T.C. 133. dealing with the question of the validity of the Bombay Sales Tax Act of 1952, Patanjali Sastri, C.J., who spoke for the Court observed at page 156 as follows: That in the present case the tax is imposed, in ultimate analysis, on receipts from individual sales or purchases of goods effected during the accounting period, and it is therefore possible to separate at the assessment the receipts derived from exempted sales or purchases and allow the State to enforce the statute with respect to the constitutionally taxable subjects, it being assumed that the State intends naturally to keep what it could lawfully tax, even where it purports to authorise the taxation of what is constitutionally exempt. In Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdships considered the validity of the provisions of section 8-B of the Madras General Sales Tax Act in so far as it authorised sales tax to be levied on the total amount of the sale price and the tax collected by the registered dealer, in cases where the seller passes on the tax to the registered buyer. Referring to the expression turnover their Lordships stated at page 483: The expression 'turnover' means the aggregate amount for which goods are bought or sold, whether for cash or for deferred payment or other valuable consideration, and when a sale attracts purchase tax and the tax is passed on to the consumer, what the buyer has to pay for the goods includes the tax as well and the aggregate amount so paid would fall within the definition of turnover. Their Lordships further stated at page 487 in the last para. as follows: What is taxable is not each transaction of sale but the total turnover of the dealer, computed in accordance with the provisions of the Act and the Rules. These observations fully support the contention of the learned Principal Government Pleader that the taxable event under section 5-A is not the total turnover of rupees three lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for levying surcharge fell under entry 54 of List II and not under entry 60 of the said List. In that view, his Lordship held that the said provision did not offend the provisions of Article 276 of the Constitution. In Kondayya v. Kurnool Municipality [1963] 1 An. W.R. 267., a Bench of this Court took the view that the surcharge on property tax on certain buildings leviable under the Andhra Pradesh Urban Areas Surcharge on Property Tax Act (13 of 1958) only provided for increasing the property tax and that the subject-matter of the tax was the building itself and that it could not be regarded as a tax on tax and that the Legislature derived competence to enact the said Act under the same entry 49 of List II which related to buildings. Applying the same principle to the instant case, we are of the view that the additional tax leviable under section 5-A is merely an addition to the tax on sale or purchase of goods falling under entry 54 of List II and is within the legislative competence of the State Legislature. As a result of the foregoing discussion we hold that the provisions of section 5-A fall within the scope and ambit of entry 54 of List II of the Seventh Schedule of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en different categories of persons has a reasonable nexus with the classification adopted by the Legislature. The question can be considered from the standpoint of the citizen as well as from the standpoint of the State. From the standpoint of the State, the classification can be justified on the ground of equitable apportionment of the burden and easy realisation of the tax. Articles of food and drink are more in demand than other articles. Even in the case of the former, there will be a larger demand in restaurants, boarding houses and hotels than in other places like way-side shops. There may be small or big dealers even in such commodities, who run hotels or keep boarding houses. The State also can reasonably recover taxes at higher rates from prosperous dealers than from impecunious ones. From the standpoint of the dealer also, there is justification for the varied rates. The articles sold, the place where the business is carried on and the expectation of large profits are the characteristics of dealers who are distinct from dealers not covered by the proviso. In Guntur District Co-operative Marketing Society Ltd. v. State Of Andhra Pradesh [1967] 20 S.T.C. 476. and Balusu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their transactions denies the equal protection of the laws in violation of the Fourteenth Amendment. Caradozo, J., dissented from the majority view and upheld the principle that a tax upon gross sales, if laid upon a graduated basis, does not result in denial of the equal protection of the laws and that the rate of tax varying progressively with the amount of gross sales, was based upon a classification reasonably related to the capacity to pay. The learned Government Pleader contends that the majority opinion in Stewart Dry Goods Co. v. Lewis 79 L.Ed. 1054; 294 U.S. 550., was not followed by Courts in India and the principle on which the opinion of Caradozo, J., is based, has been uniformly accepted and followed by the Courts in India. He relies upon the cases in Kadiyala Chandrayya v. State of Andhra [1957] 8 S.T.C. 33., K.S. Vasudevan v. State of Orissa [1963] 14 S.T.C. 220. and S. Ramanatha Shenoy Co. v. Sales Tax Officer 79 L.Ed. 1054; 294 U.S. 550. which have been referred to earlier. He also cited a ruling of the Supreme Court in Jagannath Baksh Singh v. State of U.P.A.I.R. 1962 S.C. 1563.At page 1571, Gajendragadkar, J. (as he then was), who delivered the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provisions of section 5 of the said Act are not attracted to sales or purchases of declared goods. The omission to mention section 5-A in section 6 does not lead to any inference that section 5-A is intended to be made applicable to declared goods. Section 5-A says that it applies only to those dealers who are taxable under section 5 by the expression every dealer who is liable to pay tax under section 5. The dealers who are liable to pay tax under section 5 are only dealers in goods other than declared goods as section 6 excludes such dealers from its purview. The further submission of the learned counsel that section 5-A does not fix any stage for a levy of sales tax and that it violates the provisions of section 15 of the Central Sales Tax Act cannot also be upheld in the view we have taken that section 5-A is not applicable to declared goods. The contention of the learned counsel that section 5-A is repugnant to the provisions of section 15 of the Central Sales Tax Act has to be negatived. Though it was feebly suggested by the learned counsel that the imposition of additional tax under section 5-A offends Article 19(1)(g) of the Constitution, this argument has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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