TMI Blog1972 (1) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... h deductions and in such manner as has been prescribed. Turnover may be purchase turnover or sales turnover. Section 2(xxvi) defines turnover as the aggregate amount for which goods are either bought or sold, or supplied or distributed by a dealer. The proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. The tax under section 5 may be on the taxable purchase turnover or the taxable sales turnover of a dealer. That sub-section itself provides that in the case of goods specified in the First or Second Schedule, it would be at such points against such goods as are specified in the schedule and in the case of other goods at all points of sales. Therefore, it is apparent that all goods (which is a term defined in the Act) are liable to tax under the Act either at all points of sale or a particular point specified in the First or Second Schedule. These specified points are either points of purchases or of sales. The definition of a dealer indicates that it includes a casual trader and even a person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at his option, instead of paying the tax in accordance with the provisions of sub-section (1), pay tax at the rates mentioned in clause (i) of sub-section (1) of section 7 in accordance with the provisions of that section." 4.. It is evident from the provision in section 5A that in cases where any dealer purchases goods, the sale or purchase of which is liable to tax under the Act in circumstances in which no tax is payable under section 5, he is liable to tax relating to such purchases in case one of the three conditions is satisfied, namely, (1) the goods are consumed in the manufacture of goods for sale or otherwise, (2) the goods are disposed of in any manner other than by way of sale in the State, and (3) the goods are despatched outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. Goods which are purchased by a dealer could either be used by him in the State itself or could be sent outside the State. In cases where goods are sent outside the State as a direct result of sale or purchase in the course of inter-State trade or commerce, there is no liability under section 5A. But if the goods are sent for any other pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose a tax which does not arise on the occasion of the sale but is made to depend upon subsequent consumption or use of the goods or dealing with the goods and which, therefore, according to counsel, renders it a tax other than a sales tax, possibly a tax on consumption or use, the imposition of which is beyond the competence of the State Legislature. 6.. The power of the State Legislature to enact the sales tax law is derived from entry 54 in List II of the Seventh Schedule to the Constitution of India. That entry, as substituted by the Constitution (Sixth Amendment) Act, 1956, for the original entry 54 reads thus: "54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I." 7.. Could it be said that a tax apparently imposed on the sale or purchase of goods cannot be justified with reference to entry 54 in List II because it is a tax which does not arise on the occasion of the sale? The main attack against the validity of section 5A is that the occasion for the taxation under that section is not the purchase by the dealer which event is ultimately sought to be taxed but subsequent dealing by him with the goods which ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for their contention in the decisions of the Federal Court of India in In re C.P. Motor Spirit Act[1938] 1 S.T.C. 1 (F.C.); A.I.R. 1939 F.C. 1. and in Madras Province v. Boddu Paidanna Sons[1942] 1 S.T.C. 104 (F.C.); A.I.R. 1942 F.C. 33. The first of these cases was a reference by His Excellency the Governor-General of India to the Federal Court under section 213 of the Constitution Act, 1935, and it concerned the vires of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act (14 of 1938). Whether that legislation, which was by a Provincial Legislature which had power to tax sale of goods, could be sustained on the basis of its taxing power was the question that the Federal Court had to answer and this called for a consideration of the essential distinction between duties of excise and sales tax. Sulaiman, J., at page 22 of the report said thus: "Obviously the power to tax the sale of goods is quite distinct from any right to impose taxes on use or consumption. It cannot be exercised at the earlier stage of import or manufacture or production, nor at the later stage of use or consumption, but only at the stage of sale. The successive stages of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was not referring to the time of sale as determining factor in the matter of competence of the Legislature to tax by reason of the entry corresponding to entry 54 in List II of the Seventh Schedule of our Constitution is evident. The Supreme Court had to consider a more or less similar argument advanced in a case where the challenge was made to the competency of the State Legislature to enact U.P. Sales Tax (Validation) Act, 1958. That validated an earlier notification of the State imposing the tax on the sale proceeds of jute which had been struck down. The contention before the Supreme Court was that, notwithstanding the Validation Act, the notification continued to be void and inoperative because it had not been in fact valid and the Act itself was ultra vires. Several grounds were urged and one of the main grounds was that the Act could not be said to be authorised by entry 54 in List II as it enabled the tax to be levied otherwise than on the occasion of the sale. Dealing with this question, the Supreme Court said in J.K. Jute Mills Co. v. State of U.P.[1961] 12 S.T.C. 429 (S.C.); A.I.R. 1961 S.C. 1534., thus: "But it is urged on the strength of certain observations i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh[1954] 5 S.T.C. 193 (S.C.); A.I.R. 1954 S.C. 459. Similarly, attempt to tax works contract failed as held in the case of Madras State v. Gannon Dunkerley Co.[1958] 9 S.T.C. 353 (S.C.); A.I.R. 1958 S.C. 560. It was held by the Supreme Court that: "Where the transaction is one of sale of goods as known to law the power of the State to impose the tax thereon is plenary and unrestricted subject only to any limitation which the Constitution may impose and in the exercise of that power it will be competent to the Legislature to impose a tax on sales which are taken place prior to the enactment of the legislation." 11.. Before parting with the discussion on this question, I may refer to the decision of the Supreme Court in Andhra Sugars Ltd. v. State of A.P.[1968] 21 S.T.C. 212 (S.C.); A.I.R. 1968 S.C. 599. There the challenge was made to the validity of levy under section 21 of the A.P. Sugarcane (Regulation of Supply and Purchase) Act, 1961. That section enabled taxation of purchase of sugarcane made under agreements. The attack to that section was that sugarcane was taxed on the purchases when it was required for use, consumption or sale in a factory, and on the wording of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld." 14.. Dealing with section 21 of the A.P. Sugarcane (Regulation of Supply and Purchase) Act, 1961, which I have adverted to in this judgment earlier, the Supreme Court dealt with the infringement of article 301 of the Constitution by the measure of taxation under the said provision. As I mentioned earlier, that provision imposed a levy of tax on purchase of sugarcane for use and consumption and, therefore, it was contended that this provision impeded free trade, commerce and intercourse. The Supreme Court referred to its earlier decision in Firm A.T.B. Mehtab Majid Co. v. State of Madras(1), dealing with a similar contention in regard to import of hides and skins and quoted the following passage: "It is therefore now well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Supreme Court in Bhawani Cotton Mills Ltd. v. State of Punjab[1967] 20 S.T.C. 290 (S.C.). The Supreme Court observed thus: "It is not open to the State to urge that it is entitled, in the matter of levying tax on transactions by way of purchase, to tax only the category of purchases for use in the manufacture of goods for sale. Further, the State has not been able to satisfy us that there is any reasonable classification made, which will enable this court to sustain the notification." This observation has, according to me, no relevance to the cases here. Under section 5A it is not only goods which are consumed in the manufacture or sale that are taxed on their purchase turnover in the hands of the dealer. The three categories mentioned in section 5A exhausts all manner of dealing with the goods. The goods may be used inside the State or may be destroyed within the State. The goods may be sent outside the State, whether it be for the purpose of sale or whether as the result of the sale. All such cases are covered by the three classes in section 5A(1). In all cases excepting those where sales take place within the State or sales take place in inter-State trade or commerce, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by articles 14 and 19 of the Constitution or the test of reasonableness prescribed by article 304(b). Taxing statutes should not be confiscatory, and it is open to the courts to see whether the statute is really a disguise or a cloak to achieve confiscatory purposes. But mere retrospective operation of a taxing statute cannot give it the character of a confiscatory statute. This is the case even in regard to a tax which the person sought to be taxed is allowed to pass on to a third party like the consumer. In regard to taxing statutes the Supreme Court said in the above decision thus: "In other words, it may be open to a party affected by the provisions of the Act to contend that the retrospective operation of the Act so completely alters the character of the tax imposed by it as to take it outside the limits of the entry which gives the Legislature competence to enact the law; or, it may be open to it to contend in the alternative that the restrictions imposed by the Act are so unreasonable that they should be struck down on the ground that they contravene his fundamental rights guaranteed under article 19(1)(f) and (g)." Referring to the retrospective character of a tax legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said proceedings before it uses its legislative power to cure the alleged infirmity in the earlier Act. In such a case, if after the final judicial verdict is pronounced in the matter the Legislature passes a validating Act, it may well cover a long period taken by the judicial proceedings in court and yet it would be inappropriate to hold that because the retrospective operation covers a long period, therefore, the restriction imposed by it is unreasonable. That is why we think the test of the length of time covered by the retrospective operation cannot by itself be treated as a decisive test." 18.. Counsel would contend that on the facts of the case the retrospective levy must be held to be bad. This levy is said to be such a heavy burden on the business that it practically destroys the right to carry on the business. Necessarily this would depend upon the enormity of the burden imposed by the retrospectivity of the statute. The mere fact that it is not possible to pass on the levy to the consumer has been held to be not sufficient to affect the competency of the Legislature to impose the tax. That is because by its very nature the tax is on the sale or purchase and not on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the petitioner, that if it is not so used in manufacture, it continues to retain its identity in which case there is no scope for applying section 5A. 21.. The Third Schedule to the General Sales Tax Act enumerates goods exempted from tax under section 9 thereof. That section provides that a dealer, who deals in the goods specified in the Third Schedule, shall not be liable to pay any tax under this Act in respect of the sale or purchase of such goods subject to such restrictions and conditions as may be prescribed. Item 10 in the Third Schedule is vegetables and that item runs as follows: "10. Vegetables (other than green ginger), whether roots green fruits or leaves, used for human consumption including tapioca, yam potatoes, lime, sabola and tomatoes, except their manufactured products. Explanation.-The term 'vegetables' shall not include any goods of the description specified in the First or Second Schedule." This indicates that roots, green fruits and leaves may be vegetables if such are used for human consumption. According to the petitioner, pineapple should be considered a vegetable. That it is not a vegetable has been held by this court in Deputy Commissioner v. Mamm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase must be of any goods, the sale or purchase of which is liable to tax under the Act; and (4) the purchase must be in circumstances in which no tax is payable under section 5. Now, to illustrate this, supposing B purchases goods from A and deals with the goods in one or other of the ways specified in clauses (a) to (c) to section 5A(1), for determining the liability of B under section 5A the following questions will have to be asked: (1) Whether B is a dealer who is making purchases in the course of his business? (2) Is the purchase of goods, the sale or purchase of which is liable to tax under the Act? (3) Is the purchase from a registered dealer or from any other person? (4) Is the purchase under circumstances under which no tax is payable under section 5? 24.. The first of these requirements should be satisfied if B happens to be a dealer who is making the purchases in the course of his business and not casual purchases otherwise than in the course of his business. 25.. That the purchase by B should be of goods, the sale or purchase of which is liable to tax under the Act is the next requirement. The term "goods" is defined in section 2(xii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that section 5A may apply, the next requirement is that purchase by B must be from a registered dealer or any other person. The sale can be effected by a registered dealer, a non-registered dealer or a non-dealer. These three categories, so far as I could see, must exhaust the categories of sellers. Therefore, the words "any other person" may refer to a non-registered dealer as well as a non-dealer. A registered dealer is liable to pay tax on his sales under section 5(1) of the Act. A dealer even though not registered is also liable to pay tax under the Act on his turnover. But in both cases, there is a minimum turnover prescribed as a condition to attract the liability for payment of tax. A non-dealer is not made liable under the Act and sales by him, therefore, is not within the purview of section 5. One instance of such sales by nondealers will be casual sales. These casual sales are to be distinguished from sales by casual traders, a term which is defined in the Act itself. 27.. Though normally a sale by a registered dealer or by a dealer attracts tax, there may be circumstances under which the seller may not be liable as, for example, when his turnover is below the specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in circumstances in which no tax is payable under the Act. In such a case, the purchaser is sought to be taxed under section 5A provided the conditions are satisfied. The case of growers selling goods to persons to whom section 5A thus applies is covered by this example. 29.. Yet another possible case is where casual sales are made by persons who are not dealers as the term is defined in the Act. The goods may be such as to attract tax on their sales, but the sales are under circumstances which would not attract the levy on account of the character of the seller. The conditions to attract clauses (a), (b) or (c) of section 5A(1) may be present. The transactions of sales are not taxable in the circumstances in which they were effected because the person who effected the sales was not a dealer liable to tax under the Act and the circumstances indicate that at no subsequent point the goods would suffer taxation in the State. It is then sought to be taxed in the hands of the purchaser under section 5A. This, according to me, is the scheme of section 5A of the Act and bearing this in mind, I am proposing to resolve the questions of tax liability of the various petitioners whose pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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