TMI Blog1982 (12) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... l; (ii) where even a registered dealer collects tax on transactions which are not taxable at all under the Act; and (iii) where a registered dealer collects tax even on transactions at a rate higher than that at which they are taxable under the Act. That these are the contraventions of section 22(1) can be spelled out from rule 24(16)(ii) of the Tamil Nadu General Sales Tax Rules, 1959. In the cases before us, penalties were levied under section 22(2) of the Act on registered dealers on the ground that sales tax was collected by them on transactions not liable to tax under the Act. The registered dealers in question are dealers in iron and steel goods, machinery, accessories and tools, cycles, and cycle spare parts, electrical goods, and the like. These are single point taxable goods. Under section 3(2) or section 4 of the Act read with the appropriate entries in the First or Second Schedule to the Act, the first seller of these goods is liable to pay single point tax on these items. Second and subsequent sellers of the same goods in the State are not liable to pay sales tax on the second or subsequent sales. Under section 22(2) read with rule 24(16)(ii), the first seller in thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sales. The inquiry then is: whether a mere recoupment by second sellers of tax collections made from them by the first sellers can be regarded as partaking of the character of "collections by way of tax" within the meaning of section 22(2)? According to the learned Advocate-General, who argued these cases for the State Government, even mere recoupments of tax by the second sellers would render them liable for penalty under section 22(2) of the Act. He referred to the language of section 22(2) and said that it also covers the case of a person who "collects any amount purporting to be by way of tax". This phrase, according to the Advocate-General, is apt to apply even to a collection of money on the part of second sellers by way of recoupment of tax which had been collected from them by the first sellers at the stage of first sales. The learned Advocate-General conceded that section 22(2) would not have applied if these second sellers had shown a consolidated amount in their sale bills, instead of separately displaying in the bills the amounts charged to the customers as so much for recoupment of the sales tax collected from them by the first sellers and so much for the sale cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted for at that stage, and every successive dealer can not only recoup the taxes earlier levied, but can collect from the purchaser the tax to which he himself is liable. If, for instance, the multi-point rate is 10 per cent and the commodity is sold for Rs. 100, then the dealer has every right to collect sales tax at 10 per cent from his purchaser. The purchaser's cost then would be Rs. 110. When he sells the goods in turn, he has to pay multi-point sales tax at 10 per cent which will come to Rs. 11. This amount he can add to his cost price namely Rs. 110. His sale price would then be Rs. 121, assuming that he is not making any profit out of the transaction. This process will go on at every subsequent stage of the multi-point chain of transactions. The tax will have a cumulative effect and will get reflected in the ultimate price payable by the consumer. It is because of the progressively rising incidence of the cumulative multi-point tax that sales tax legislations in modern economic systems have largely been converted to a single point levy on transaction in most of the goods. In this milieu, no one will say it is a contravention of the Act if a dealer liable for tax at a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same goods. Hence, whether we call this collection as a recoupment, reimbursement, plusage or by any other name, such a collection only relates to the transaction which is strictly taxable under the Act, and therefore, any collection of tax in respect of such transaction cannot be regarded as a collection in contravention of either rule 24(16)(ii) or of section 22(1) of the Act. It follows that penalty cannot be levied for making such collections. The learned Advocate-General then urged that even in the matter of recoupment of the tax leviable at the point of first stage the second sellers have permitted themselves a larger recoupment then the actual tax borne by the goods at the stage of first sale. Mr. V.K. Thiruvenkatachari, however explained that in cases where a second seller purchases in bulk these good from several different first sellers, carries them to stock and then sells the items in retail under various transactions, it is well-nigh difficult for the second seller to be precise and recoup the exact sum from his purchasers. We appreciate the practical difficulty which Mr. Thiruvenkatachari has adverted to. But we must decide the issue on principle, not on any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arately showing in their invoices the price of goods proper and the amount of recoupment of the sales tax borne in on the goods at stage of first sale. These arguments, enlightening as they were, however possess no practical value in the present discussion. For as the learned Advocate-General pointed out, there was nothing on record to show that the goods dealt with by the dealers in the instant cases were goods to which Central Act No. 60 of 1976 applied. We accept the principle that if the proviso applies, any collections of tax falling under the proviso cannot contravene section 22(1), and if section 22(1) is not contravened, then, there can be no levy of penalty under section 22(2). However, in the absence of materials in these cases, to show that the recoupments of tax by these second sellers were covered by the proviso to section 22(1), the reference to Central Act No. 60 of 1976 or other price-control legislations, must be dismissed as purely academic. However, for the reasons we have earlier mentioned, we must hold that the penalties levied on these second sellers must be held to be illegal, since they are not authorised by section 22(2) of the Act. The dealers' revisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyond their purview. Tax penalties are aids to the enforcement of the taxing provisions, and therefore, they are incidental and ancillary to those provisions. They may serve the purposes mentioned by this Court in the Sivagaminatha Moopanar decision [1955] 28 ITR 601. But what was said in that case is not the be-all and end-all of tax penalties of every description. Mr. Thiruvenkatachari then submitted that a second seller or a subsequent seller must recover the tax suffered in the first sale in order to recover his cost price and avoid losses. The learned counsel added that if section 22(2) levied a penalty on a second seller who recoups the tax just for the sake of avoiding loss in this manner, then the provision cannot be regarded as ancillary or incidental to the taxing power of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution. We think that effective answers to these contentions are furnished by the decision of the Supreme Court in Joshi, Sales Tax Officer v. Ajit Mills Ltd. [1977] 40 STC 497 (SC) and the more recent decisions of this Court and the Bombay High Court in Arunachalam Chettiar Co. v. State of Tamil Nadu [1979] 44 ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d General Sales Tax Act, 1950, which enabled the State Government to appropriate amounts collected by a person on transactions not in themselves taxable. Apparently drawing a lesson from this decision, the Tamil Nadu Legislature dropped from the statute book section 22(2) and 22(3) of the Act as they originally stood under which illegitimate collections of sales tax have had to be paid over to the Government Treasury. In their place, the State Legislature introduced the present section 22(2) under which illegitimate collections of sales tax are to be visited, not with forfeiture, but with a penalty extending upto one and half times the amount of the unauthorised collections. It is a feature of the provisions in section 22, both before and after the amendment, that a registered dealer making legitimate collections of tax is dealt with differently from an unregistered dealer making an illegitimate collection of tax. Before the amendment, there was no provision requiring the registered dealer to pay what he collected. He may return less than he collected, or he may not file a return at all, but court a best judgment under-assessment. In either event, he can make a profit on his coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h he might pay the entire amount so collected into the State treasury. From the point of view of the object of the taxing Act, and from the point of view of preventing leakage or loss of revenue, there is no earthly reason why a registered dealer who does not pay what he has collected should get away with it, while an unregistered dealer who collects tax and pays what he collects must be visited with penalty under section 22(2). If section 22(2) excuses, or excepts an unregistered dealer from penalty wherever he pays all that he had collected, it might to a certain extent have made the provision tolerable if not wholly equitable. As it is, however, payment of tax collected unauthorisedly will not relieve the dealer from penalty, for section 22(2) levies penalty on the mere act of collection; it does not take note of payment made to the State of the amounts so collected. These strange features of section 22(2) show how unsatisfactory from the point of view of equality the provision for penalty figures and operates under section 22(2). It is a matter for question whether this discrimination in fiscal treatment brought about by section 22(2) as between legitimate collections (by r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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