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TMI Blog1957 (9) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... the State or exported to foreign countries for tanning. Thus, under rule 4(2)(c) when a licensed tanner purchases untanned hides and skins for tanning, the amount for which he purchases the goods is to be included in his turnover and he is taxed thereon; and under rule 4(2)(d) when a licensed dealer purchases untanned hides and skins for export, the amount for which he purchases would be included in his turnover and he would be taxed thereon. Then comes rule 16 which has come in for considerable criticism. Rule 16(2) fixes in accordance with rule 4 the points of taxation at the stage of tanning or at the stage of export. But then, it limits the operation of this rule to sales by licensed dealers. It is this limitation that furnishes the ground for attack on the rules. To understand the objection, it will be useful to analyse the possible cases which might arise on the application of rule 16(2). Taking first the case of hides and skins which are tanned within the State, four possible situations might arise. There might be a sale by a licensed dealer either to a licensed tanner or to an unlicensed tanner; or there might be a sale by an unlicensed dealer either to a licensed tanner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t page 501 thus: "The conclusion we have reached as a result of the above discussion is that (1) the charging 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 section 5(vi) but 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." Dealing with rule 16(2)(ii) which deals with the case of a last dealer who purchased untanned hides and skins for export outside the State, the learned Judges observed that the pattern (1) [1955] 6 S.T.C. 352, at page 364; (1955) 2 M.L.J. 494. of rule 16(2)(ii) is exactly identical and does not need se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 the dealer is exempted from taxation. The general scheme adopted is multiple point taxation. In the case of specified goods, they are made liable to a single point also 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 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 aforesaid provisions clearly indicate that, under the Act and the rules framed thereunder, the general scheme is multi-point taxation on the turnover of a dealer. It m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wledge that these raw hides are gathered by petty dealers and sold to a tanner or a big exporter of such goods to foreign countries. The State is, therefore, interested to encourage the trade in order to capture foreign markets and to conserve foreign exchange. To achieve this object, without at the same time drying up the source of income from this commodity by way of sales tax, the Act adopts single point taxation and provides that the tax is payable on the purchase turnover by a tanner or the last dealer who purchases for export. This gives the necessary relief to small dealers as the tanner or the purchaser for export as the case may be who buys from the various dealers pays tax on the purchase turnover. This process is also convenient from the standpoint of the collection of the tax as the State, instead of proceeding against small dealers who more often than not may come under the category of exempted dealers, can collect the amount of tax from the tanner or the dealer for export as invariably he is a big business man capable of maintaining regular accounts. The stage of collection is also appropriate as, after the tanning, the hides and skins become different commodities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictions and conditions as may be prescribed, including conditions as to licences and licence fees. (vi) the sale of hides and skins, whether tanned or untanned 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." (1) (1928) 54 M.L.J. 625; I.L.R. 51 Mad. 301. Page No: 238 "Rule 5 of the Madras General Sales Tax Rules-Every person who(c) deals in hides and/or skins whether as 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 1 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 April of the year for which the licence is applied for." "Rule 4(2), Madras General Sales Tax (Turnover & Assessment) RulesIn the case of the 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 him. (c) untanned hides and skins bought by a licensed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and Rules 4(1) and 16(5) of the Madras General Sales Tax (Turnover and Assessment) Rules clearly indicate the turnover to be taxed, the person liable to pay the tax and the stage and the manner of levy. Under those provisions, sales tax is levied on a seller on each occasion of the sale on his gross turnover representing the amount for which the goods are sold by him. The second set of provisions provide for qualified levy. Under those provisions, a licensed dealer is liable to pay tax on the purchase turnover at the stage at which the goods are sold to a tanner in the State or sold for export outside the State. The third set of provisions provide for the exemption or reduction in rate in respect of any tax payable under the Act on specified goods. Under rule 16(2), the payment of such tax is exempted in the case of hides and skins except at the stage at which such hides and skins are sold to a tanner in the Stage or are sold for export outside the State. We are now concerned in this case with the category of qualified levy and much of the argument centred round the said provisions. While the Government Pleader contends that rule 4(2)(c) and (d) prescribe the stage at whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions liable to be taxed. Under it a sale subject to taxation is a sale between the licensed dealer and a tanner or exporter. But what is said is that clauses (i) and (ii) of sub-rule (2) do not restrict the transactions only to those between licensed dealers and therefore reading those clauses along with rule 4(2) it should be held that the liability to tax at a single point is not confined only to sales by licensed dealers. This argument, in effect, seeks to dissociate or separate the sub-divisions from the main rule. Clauses (i) and (ii) are only illustrations of the main sub-rule (2). These two sub-clauses are preceded by a dash and it is a well known device for introducing a list. The illustrations cannot obviously enlarge the scope of the main provision. When the main provision imposes a tax in regard to a transaction between licensed dealers, the illustrations cannot be construed to take in transactions between other persons. By the mere fact that the word "tanner" in clause (i) and the word "dealer" in clause (ii) are not qualified by the word "licensed" it cannot be said that the transactions between unlicensed dealers or between licensed dealers and unlicensed tanne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we entirely agree with the conclusions arrived at by the learned Judges. The judgment of a Division Bench of the Madras High Court in Syed Mohammed & Co. v. State of Madras(2) is pressed upon us in support (1) [1955] 6 S.T.C. 352. (2) [1952] 3 S.T.C. 367; (1952) 2 M.L.J. 598. of the contrary conclusion. That was a case which related to a licensed tanner who had also purchased from a licensed dealer. The present question, therefore, did not directly arise for consideration. But, reliance is placed upon the following observations at page 612: "Taking first the case of hides and skins which are tanned within the State, four possible situations might arise. There might be a sale by a licensed dealer either to a licensed tanner or to an unlicensed tanner; or there might be a sale by an unlicensed dealer either to a licensed tanner or to an unlicensed tanner. When the sale is by a licensed dealer, rule 16(2)(i) provides for a tax being levied on the tanner whether he is licensed or unlicensed. But where the sale is by an unlicensed dealer, there is a difference in the incidence of taxation. If the sale is to a licensed tanner then under rule 4(2)(c) the purchaser has to pay the tax. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover is taxed at the sale point under the multi-point scheme of taxation. That decision does not constitute any link in the chain of reasoning which led me to the conclusion on the present question. The learned Judge, who delivered the judgment on behalf of the Full Bench of the Madras High Court in Hajee Abdul Shukoor & Co. v. The State of Madras(1) observed at page 367 thus: "The only reservation which we desire to make is that the conclusion does not really flow by reason of the invalidity of rule 16(5) but because of the proper construction of rule 16(2) for rule 16(5) has to do with the taxation of unlicensed dealers whereas the question now under issue is the transactions of licensed dealers though their purchases are from unlicensed dealers. Rule 16(5) could have no bearing either as imposing or exempting any tax liability in such a case." The present view expressed by me is, therefore, not inconsistent with the earlier decision of this High Court nor is it intended to affect its validity in any way. Many anomalies and incongruities, it is said, would arise in the working of the Act, if we should hold that the concession of single point taxation applied only to transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point taxation instead of multi-point taxation under section 3(1). One of such commodities is hides and skins. Under rule 5(e) of the Madras General Sales Tax Rules, the accrual of the concession is conditioned by the taking of a licence. If the licence is not taken or renewed, the concession is withdrawn. Rule 4(2) of the Madras General Sales Tax (Turnover and Assessment) Rules says nothing more than that, in the case of the said commodity, the amount for which the goods are bought by the dealer is the turnover on which tax is leviable. It does not either in express terms or by necessary implication localise the stage or the transaction in regard to which the tax becomes exigible. That is expressly done by rules 15 and 16, which provide for the levy and collection of taxes. They indicate beyond any reasonable doubt that the levy of sales tax is on the turnover representing the price for which a licensed tanner or exporter purchases from a licensed dealer. Rule 16, therefore, fixes the stage and levies the tax, where there are a series of transactions between licensed dealers, on the last licensed dealer whether he is a tanner or exporter. In the present case, as a licensed tanner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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