1974 (7) TMI 108 - HC - VAT and Sales Tax

Summary

Issues:
1. Liability of the petitioner to pay sales tax under the Karnataka Sales Tax Act for the turnover related to the sales of toddy by sub-lessees.
2. Interpretation of the term "dealer" under the Act.
3. Determination of liability for sales tax when sales are made by sub-lessees.

Analysis:
The petitioner, a successful bidder at an excise auction for vending toddy, sub-leased the privilege to vend toddy to others in the district of South Kanara. The petitioner sought recognition of these sub-leases from excise authorities, but no order was passed before the lease period ended. The petitioner did not register as a dealer under the Karnataka Sales Tax Act, as toddy was sold by sub-lessees. However, the Commercial Tax Officer assessed the petitioner for sales tax, considering him a dealer. The petitioner challenged this assessment, arguing that he did not sell toddy and no evidence showed others sold on his behalf. The department contended that sales by sub-lessees made the petitioner liable for sales tax.

The key issue was the interpretation of the term "dealer" under the Act. The Act defines a dealer as a person engaged in buying, selling, supplying, or distributing goods. The department viewed the petitioner as a dealer, holding him liable for sales tax. The petitioner maintained that neither he nor his authorized persons sold toddy during the relevant period. The department's position was that the sub-lessees' sales should be attributed to the petitioner due to lack of approval for the sub-leases.

The Court analyzed whether the petitioner could be held liable for sales tax on the turnover from sales by sub-lessees. It was noted that a principal is liable for sales tax when authorized persons make sales, depending on the nature and scope of authority. However, the authorities did not assess the sub-lessees' authority. Consequently, the Court found the orders unsustainable and set them aside, remanding the case to the Commercial Tax Officer for a fresh decision in line with the law and observations made. The Court emphasized that liability for sales tax does not depend on the legality of business activities, and the absence of recognition for sub-leases does not absolve the petitioner of tax liability.