TMI Blog1956 (4) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... have obtained a rule nisi. The question raised for our consideration in this petition is whether an unlicensed dealer in untanned hides and skins is liable to pay tax on his sale turnover under the provisions of the Madras General Sales Tax Act. The question as to the basis of liability to tax and the taxing pro- visions in relation to hides and skins has been the subject of consideration in several decisions of this Court. Among them is that of the Full Bench reported in Hajee Abdul Shukoor and Co. v. State of Madras(1). In view of these decisions and particularly that of the Full Bench, we propose first to summarise the law as laid down by the Full Bench and then proceed to consider the liability of an unlicensed dealer to tax on his sale turnover in the light of these decisions. The question of law considered by the Full Bench was "whether a licensed tanner who purchases untanned hides and skins from an unlicensed dealer is liable to be taxed on his turnover under rule 16(a) or under any other provisions of the Madras General Sales Tax Act and the rules framed thereunder?" This was answered in the negative and in favour of the assessee. Though the question which has arisen f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un yarn and of any cloth woven on handlooms wholly with handspun yarn and sold by persons dealing exclusively in such cloth, shall be exempt from taxation under section 3, sub-section (1); (ii) the sale of cotton (including kapas) and of cotton yarn other than handspun yarn 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 and only at the rate of one half of one per cent. of the turnover at that point; (iii) the sale of any cloth woven on handlooms wholly or partly with mill yarn shall be exempt from taxation under section 3, sub-section (1), if the sale is to a wholesale or retail dealer in the State, or if the sale is for delivery outside the State and delivery is actually so made; (iv) the sale of bullion and specie 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 and only at the rate of one- fourth of one per cent. of the turnover at that point; (v) the sale of tea grown by the seller or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e undermentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer. (a) groundnut, (b) cashew, cotton (including kapas) bought by spinning mill or by dealer who exports outside the State, (c) untanned hides and skins bought by a licensed tanner in the State, and (d) untanned hides and skins exported outside the State by a licensed dealer in hides and skins.' Rule 5 sets out how the net assessable turnover is derived, and rules 6 and 13 lay down the procedure by which the assessing authority determines the turnover and levies the tax. Rule 14 enjoins upon the assessing authority the necessity to record its reasons in writing in cases where it determines the turnover on a figure different from that shown in a return submitted under the provisions of the rules, with a proviso that the same shall not affect the validity of assessments duly made. Rules 15 and 16 are the special rules designed to apply to the assessment and levy of the tax payable on hides and skins. Rule 15(1) enacts that rules 6 to 13 shall not apply to licensed tanners and other licensed dealers in hides and skins in respect of their d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale.' Before considering the exact terms of this rule, it is necessary to set out the terms of rule 5 of the General Sales Tax Rules under which dealers have to obtain licence, for the purpose of their dealings. This rule runs thus: '5. (1) Every person who- (a) deals in cotton and/or cotton yarn other than handspun yarn and/or handspun yarn, or (b) deals exclusively in cloth woven on handlooms wholly with handspun yarn, or (c) deals in cloth woven on handlooms wholly or partly with mill yarn, or (d) deals in bullion and/or specie, or (e) deals in hides and/or skins whether as a tanner or otherwise, or (f) for an agreed commission or brokerage, buys and/or sells goods of any description on behalf of known principals 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 reach him not later than the 30th day of April of the year for which the licence is applied for:' It will be seen that the licensing p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first relates to a tanner which in the context undoubtedly means and can only mean a tanner who has actually tanned those goods. Sub-clause (ii) deals with goods exported outside the State. It will be seen that in both these cases this will be the last sale of goods within the State as untanned hides and skins for in the first case, after tanning it will become tanned hides and skins, a matter which is dealt with by rule 16(3) and in the case covered by sub-clause (ii) the untanned hides and skins would have left the State. Therefore, there could be no further sales of the com- modity within the State. The terms of rule 15 as well as those of rule 16(2) make it clear that it is a dealing by a licensed dealer that is being dealt with under these rules. The argument of the Advocate-General is that paragraphs (i) and (ii) of rule 16(2) have to be divorced from the opening portion of rule 16(2) which refers to dealings of licensed dealers and should be read as re-enacting the provisions of rule 4(2)(c) which do not specifically refer to the dealer who sells to the tanner as being licensed. An analysis of rule 16(2) clearly establishes the untenability of the argument on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision, section 3, is subject, in the case of transactions in hides and skins, to the terms of section 5(vi) under which a single point of taxation in a series of sales has to be fixed by the rules; (2) rule 4(2) is not the fixation of a single point within sec- tion 5(vi) but it is merely designed to determine whether it is the buyer or the seller that shall be liable to be taxed; (3) the single point is fixed and the liability to tax is established only 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." In the light of these we have to proceed on this postulate: In the case of hides and skins the charge levied by section 3 is subject to the provisions of section 5, and in the case of licensed dealers in hides and skins, the charging provision is rule 16 of the Turnover and Assessment Rules. In the case of an unlicensed dealer, the question to be considered is slightly different. Rule 15(1) does not ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese arguments it might be useful to restate the position so far as the rules are concerned in relation to unlicensed dealers. We have already referred to the fact that in relation to licensed dealers, the opening words of section 5 would be inapplicable to them by reason of their satisfying the condition laid down in rule 5 of the General Sales Tax Rules, and, therefore, they would be entitled to the advantage of taxation at a single point provided by sub- section (vi). The single point in their case was fixed only by rule 16, and therefore that became the charging provision so far as they were concerned. In regard to unlicensed dealers, the position was that rule 5 of the General Sales Tax Rules denied them the benefit of taxation at a single point. Their case would not fall within rule 16(1) to 16(4) which fixed the single point in regard to licensed dealers and therefore there was no such point fixed for the levy of tax at a single point on them. But the rule-making authority however proceeded to enact the logical conclusions of the provision in rule 5 of the General Sales Tax Rules by framing sub-rule (5) of rule 16 of the Turnover and Assessment Rules dealing with taxes to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by this Court in the decision in Syed Mohamed and Co. v. State of Madras(1), was a licensed dealer in hides and skins. One of the contentions raised by him was that the rules framed under the Act did not properly carry out the policy laid down in the main enactment and Venkatarama Ayyar, J., said in regard to this at page 612: "Rule 16(5) provides that sale by dealers other than licensed dealers will be 'liable to taxation on each occasion of sale.' Under this sub-clause when there are successive sales by unlicensed dealers the tax will be leviable on such occasion of sale and that will be inconsistent with section 5(vi) which provides for taxation at a single point." The learned Judge summarised the position at page 613 thus: "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 violation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich he is called upon to pay the tax had not already been subjected to tax at the hands of any other dealer. Suppose there are a series of dealers whom we shall call, A, B, C, D, E and F, F being the last purchaser who actually tans the goods and who according to rule 16(2) would have to pay the tax. If F were a licensed tanner he is entitled to insist by reason of section 5(vi) that the goods which he has purchased have not been subjected to tax at the hands of A to E whether those dealers are licensed or unlicensed. That is the scheme of the single point taxation envisaged by section 5(vi). The entire idea behind this provision in regard to hides and skins is based on this well-known fact that the commodity is usually the subject of export; and the favourable treatment is designed to prevent any unreasonable rise in the price of these goods consequent (1) [1954] 5 S.T.C. 108; (1954) 1 M.L.J. 619. on multi-point taxation, in which event the goods from this State would not be able to compete on equal terms in the world market. This was pointed out in Syed Mohamed and Co. v. State of Madras(1). If this were the basis of the provision, the invalidity of rule 16(5) of the Turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected such sales. In our opinion, this argument also is well-founded. The restrictions and conditions to be prescribed ought to be consistent with the main purpose of the sub-clause, (1) [1952] 3 S.T.C. 367; (1952) 2 M.L.J. 598. namely, providing for a single point at which the tax should be levied. This construction does not, however, render the reference to licence and licence fees otiose. If such licensing is validly made compulsory those who fail to take out the licence might be penalised by the usual methods of enforcements, namely, prosecution with the resultant fine or imprisonment. In other words, the penalties that might be imposed for breach of a condition ought to be personal and cannot extend to deprive the commodity of the benefit of the single point taxation. So viewed, it would be clear that the frame of rule 5 of the General Sales Tax Rules, which restricts the benefit of the single point taxation to those who take out licences, is contrary to the provisions of section 5(vi) which do not contemplate such a condition being imposed and would appear to forbid the imposition of such a restrictive condition. This conclusion that we have reached as to the proper interpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alternatives are not attracted. It follows that section 6-A has no application at all to the present case. Before concluding it is necessary to refer to the judgment of a Bench of the Andhra High Court which had dealt with an identical question with which we are concerned and on which some reliance was placed by the learned Assistant Government Pleader. That decision rendered in W.A. No. 2 of 1955 has not been reported yet*. Subba Rao, C.J., who delivered the judgment has reached a conclusion just the opposite to what we have reached. If analysed, that decision in favour of the State was rested on three bases. First, that rule 16(5) of the Turnover and Assessment Rules was intra vires and valid. They have held that the observations in the judgment in Syed Mohamed and Co. v. State of Madras(2), as regards the validity of rule 16(5) were merely obiter and proceeded upon a concession by the Advocate-General before this Court as well as before the Supreme Court. (2) Secondly that section 6-A is applicable to the case of a dealer who did not take out a licence for dealing in untanned hides and skins. (3) Lastly they appear to doubt the correctness of the decision of the Full Bench in Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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