TMI Blog1955 (10) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial Tax Officer made the assessment on the basis of the aforesaid turnover and called upon them to pay a tax of Rs. 8,375-0-6. The appellants filed a peti- tion under Article 226 of the Constitution of India for quashing the said order levying sales tax on the appellants for the year 1952-53. Rejecting their plea that they were not liable to be taxed, Satyanara- yana Raju, J., dismissed the application. The contention of Mr. K.V. Venkatasubramanya Iyer, learned counsel for the appellants, may be stated thus: In the case of hides and skins, section 5(vi) of the Act supersedes the charging section 3 of the Act and under section 5(vi) the said commodity is taxable only at such single point in the series of sales by successive dealers as may be prescribed. Rule 16(5) of the Turnover and Assessment Rules prescribing the point of taxation on the turnover of unlicensed dealers has been held to be ultra vires by the Supreme Court. As there is no rule prescribing the single point in the case of unlicensed dealers, there is no charging provision at all under the Act or the rules framed there- under in their case and therefore the tax imposed upon the appellants was invalid. The Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot observed by a dealer, or in case a condition so prescribed or notified requires that a licence shall be taken out or renewed, if a licence is not taken out or renewed by the dealer or if any of the conditions of a licence taken out or renewed by him are contravened or are not observed, the sales of the dealer, with effect from the commencement of the year in which such contravention or non-observance took place, may be assessed to tax or taxes under section 3, as if the provisions of section 5 or of the notifica- tion under section 6, as the case may be, did not apply to such sales and notwithstanding that a licence, if any, taken out or renewed by the dealer continued or continues to be in force during the year." THE MADRAS GENERAL SALES TAX RULES. "Rule 5. (1) Every person who- (e) deals in hides and/or skins whether as a tanner or otherwise, shall, if he desires to avail himself of the exemption provided in sections 5 and 8 or of the concession of taxation only at a single point or of taxation at the rate specified in section 5, submit an application- in Form I for a licence in respect of each of his places of business to the authority specified in sub-rule (2) so as to rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so in addition to the multiple-point tax. It also provides for a tax at a buyer's point or a seller's point but prohibits taxation, in respect of the same transaction of both the buyer and the seller or the same person in respect of the same goods both at the purchase point and the sale point. Section 5 exempts certain commodities from taxation under section 3(1) and gives some concession in regard to other commodities by providing a single point taxation instead of a multiple-point taxation under section 3(1). The said concession of single point taxation is shown amongst others to sales of hides and skins. Rule 5(e) of the Madras General Sales Tax Rules prescribes that every person, who deals in hides and skins, shall take out a licence, if he desires to avail himself of the concession of taxation only at a single point as specified in section 5. The Turnover and Assessment Rules provide for returns and assessment in respect of the turnover liable to tax under the Act including hides and skins. In the case of hides and skins, under the rules, ordinarily they are made liable at the purchase point. The procedure laid down in rules 6 to 13 apply to all taxable transactions under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to dealings in specified goods including hides and skins by adopting the single point scheme of taxation. But both the exemption made and the concession given are from the operation of section 3 which remains the charging section. If the condition under which the concession is made is not complied with, section 6A withdraws that concession with the result that the commo- dity, in regard to which the concession is given, becomes liable to be taxed under section 3(1) of the Act. This construction is supported by the wording of section 5(vi), which clearly says that the sale shall be liable to tax under section 3, sub-section (1), only at such single point in the series of sales by successive dealers as may be prescribed. One of the conditions prescribed by the rules is the taking out of a licence. This is also emphasised by section 6A which says that, when a contra- vention or non-observance of the condition takes place, the sale will be assessed to tax under section 3 as if the provisions of section 5 did not apply to such a sale. The aforesaid provisions clearly, therefore, indicate that section 3 has not been abrogated or superseded by section 5. But section 5, subject to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be effected by the Sales Tax Authorities in respect of the turnover of all taxable commodities including hides and skins. Rules 15 and 16 prescribe a special procedure for licensed tanners and licensed dealers who have taken licences or renewed them under rule 5 of the Madras General Sales Tax Rules in respect of their dealings in hides and skins. Sub-rule (5) only declares the legal effect of not taking out a licence by dealers in hides and skins. As, by the operation of sec- tion 6A of the Act, the concession given by section 5(vi) of the Act and rules 15 and 16 of the Madras General Sales Tax (Turnover and Assess. ment) Rules is withdrawn, dealers other than licensed dealers are liable to be taxed just like other dealers in other commodities on each occasion of sale. Rule 16(5) does not purport to say anything more than the legal effect of the withdrawal of the concession. In this view there is no inconsistency between section 5(vi) of the Act and rule 16(5) of the Turnover and Assessment Rules. While section 5(vi) says that the sale of hides and skins shall be liable to tax only at such single point in the series of sales by successive dealers as may be prescribed, rule 16(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1952) 2 M.L.J. 598. rules framed thereunder were discriminatory in that they imposed sales tax in some cases on the purchaser and, therefore, offended Arti- cle 14 of the Constitution. Both the contentions were negatived by the learned judges. In the course of the judgment, the following para- graph appears at page 613: "Now the contention of the petitioners is that where there are sales by unlicensed dealers to unlicensed tanners or unlicensed dealers, there is the possibility of multiple taxation and that would be in viola- tion of section 5(vi). It is not disputed on behalf of the Government that rule 16(5) is repugnant to section 5(vi). It must therefore be held to be ultra vires. But this can bring no relief to the petitioners, as they are all licensed tanners and are in no manner hurt by the opera- tion of rule 16(5). This was conceded by the learned advocate for the petitioners." It will be seen from the aforesaid passage that the validity of rule 16(5) did not directly arise in that case for the simple reason that the assessees were all licensed tanners. Further, the observation was made by the learned judges on a concession made by the Advocate-General. In the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skins and unlicensed dealers in the same commodity offends Article 14 of the Constitution. Article 14 has been the subject of judicial scrutiny and the principle has been authoritatively laid down by the decisions of the Supreme Court the latest of them being that of Budhan Chowdhary v. State of Bihar(1). Das, J., after reviewing the case law on the subject, made the following observations at page 193: "It is now well-established that while Article 14 forbids class legis- lation, it does not forbid reasonable classification for the purposes of legislation. In order however to pass the test of permissible classifica- tion, two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes per sons or things that are grouped together from others left out of the group, and (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classifica- tion may be founded on different bases; namely, geographical or ac- cording to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achieve the said object. Rajamannar, C.J., in State of Madras v. K.H. Chambers(1) upheld a classification under the provisions of the Madras General Sales Tax Act between a licensed dealer and an unlicensed dealer. At page 322, the learned Judge observed: "The scheme of assessment under the Madras General Sales Tax Act certainly makes a difference between a licensed dealer and an un- licensed dealer. For instance, a sale of untanned hides and skins by an unlicensed dealer is included in the seller's turnover under rule 4(1), whereas a sale by a licensed dealer of such goods is included in the buyer's turnover. So far as the final export is concerned, neither the licensed dealer nor the unlicensed dealer can be taxed. Nor are they taxable under the rules, read with Article 286. It is not correct to say that while the unlicensed dealer escapes taxation in view of Article 286, the licensed dealer has to pay this tax. He is not liable to pay any tax in-respect of the export sale. It is the prior purchase that is taxable. Different results would follow in different circumstances, namely, where an unlicensed dealer sells to a licensed dealer, when an unlicensed dealer sells to an unli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under rule 16; and (4) that under rule 16(2)(i) it is only the sale of untanned hides and skins by a licensed dealer to a licensed tanner who tans the same that gives rise to a tax liability and that purchases of untanned hides and skins by tanners from persons other than licensed dealers are not within the taxing provisions." (1) [1955] 6 S.T.C. 352. At page 364 the learned judge, after noticing the judgment in Syed Mohamed Co. v. State of Madras(1) wherein the Madras High Court held that rule 16(5) was ultra vires observed: "What the effect of this is upon the liability of an unlicensed dealer to taxation does not arise for consideration in the present case because the assessee whose case is referred is a licensed dealer. But in considering the scheme of taxation enacted by rule 16, we cannot ignore the existence of sub-rule (5)." Again at page 367, the learned Judge in dealing with the observa- tions of Satyanarayana Rao, J., in Mohamed Zackria Co. v. Government of Madras(2) made it clear that he would prefer not to rest his conclusion on the invalidity of rule 16(5), for the learned judge observes: "The only reservation which we desire to make is that the conclu- sion does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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