Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF SALES TAX, U.P.
Vs.
RESPONDENT:
BISHAMBER SINGH LAYAQ RAM
DATE OF JUDGMENT26/08/1980
BENCH:
SEN, A.P. (J)
BENCH:
SEN, A.P. (J)
BHAGWATI, P.N.
VENKATARAMIAH, E.S. (J)
CITATION:
1980 AIR 2047 1981 SCR (1) 548
1981 SCC (2) 27
ACT:
U.P. Sales Tax Act 1948, ss. 2(c) Expln. 7(3) and
11(4)-Kutcha arhatiya whether a dealer-Question of law
neither raised before the appellate nor revisional
authority-High Court in reference-Whether entitled to go
into the question.
Words & Phrases-’arhatiya’-’pucca arhatiya’-’kutcha
arhatiya’-Meaning of-s. 2(2) Expln. U.P. Sales Tax Act,
1948.
HEADNOTE:
Section 2(c) of the U.P. Sales Tax Act, 1948 defines
"dealer" to mean any person or association of persons
carrying on the business of buying or selling goods in Uttar
Pradesh whether for commission, remuneration or otherwise.
By the U.P. Sales Tax (Amendment) Act, 1949 an Explanation
was inserted in this section to provide that a factor, a
broker, a commission agent or arhatiya, a del credere agent,
an auctioneer, or any other mercantile agent by whatever
name called, and whether of the same description as
hereinbefore mentioned or not, who carries on the business
of buying or selling goods on behalf of his principles, or
through whom the goods are sold or purchased shall be deemed
to be a dealer for the purposes of the Act.
The respondent (assessee) who was registered as a
dealer under section 8A was carrying on business in jaggery,
amchur, khandsari etc. on its own account and as kutcha
arhatiya. The nature of the business carried on by the
assessee was that cultivators brought their produce to the
assessee for sale. The goods were weighed at his shop and
then supplied to the pucca arhatiyas or to other persons.
Price of the commodity in full or part was paid by the
assessee to the cultivators directly, and the price from the
purchaser were realised after wards. During the assessment
year 1967-68 the Sales Tax Officer by his assessment order
rejected the account books of the assessee on the basis of
some discrepancy found during the four surveys carried out
at the shop and made a best judgment assessment under sub-
section (3) of section 7 of the Act, determining the taxable
turnover of purchases effected by the assessee as a kutcha
arhatiya at Rs. 5.3 lacs and taxed it. On appeal the
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Assistant Commissioner (Judicial), Sales Tax reduced the
taxable turnover of purchase by Rs. 1.5 lacs. Cross-
revisions by the appellant as well as by the respondent were
allowed by the Additional Judge (Revisions), Sales Tax who
by his order negatived the plea of the assessee that he was
not a dealer but held from the material on record that the
taxable turnover of the assessee could not reasonably be
determined at Rs. 3.8 lacs. The orders of the Assistant
Commissioner (Judicial) and Sales Tax officer were set aside
and a fresh best judgment assessment was directed to be
made.
549
The High Court upon reference, as to the liability of
the assessee to tax on the transactions effected by it as
kutcha arhatiya held that the assessee was not a dealer. It
further held that a person can be liable to tax as a dealer
only if he acts as an agent having the authority to pass
title in the goods sold, and that a kutcha arhatiya merely
brought together the seller and the purchaser and helped in
settling the price and weighment of the goods etc.
In the appeal to this Court it was contended on behalf
of the appellant, that the High Court was wrong in holding
that the assessee was not a dealer within section 2(c) of
the Act and that the High Court had completely overlooked
the Explanation to section 2(c) which was inserted by the
U.P. Sales Tax (Amendment) Act, 1959 particularly the words
"through whom the goods are sold or purchased", and that the
Sales Tax Officer was not justified in making an assessment
to the best of his judgment under section 7(3).
Allowing the appeal
^
HELD: 1(i) The finding arrived at by the High Court
that the assessee as a kutcha arhatiya merely brought
together the seller and the buyer charging an additional sum
by way of commission and, therefore, could not be regarded
as a dealer i.e. a person engaged in the business of buying
and selling goods, is contrary to the admitted facts of the
case. [551 H]
(ii) Explanation to s. 2(c) brought within the
definition of ’dealer’ not only a commission agent, a
factor, a del credere agent or any other mercantile agent by
whatever name called, and whether of such description or
not, but also a broker, an auctioneer as well as an
arhatiya. [554 D]
(iii) The definition of ’dealer’ in section 2(c) is
wide enough to include selling or purchasing agent of
whatever name or description. The term ’arhatiya’ is wide
enough to include kutcha arhatiya. [554 E]
(iv) The basic distinction between a kutcha and a pucca
arhatiya is that a kutcha arhatiya acts as an agent on
behalf of his constituent and never acts as a principal to
him. A pucca arhatiya acts as a principal as regards his
constituent and not as disinterested middleman who brings
principals together, there being no privity of contract
between the constituent and the third party. On the other
hand a kutcha arhatiya usually denotes a person who merely
’brings together the buyer and seller’ charging his
commission, who has no dominion or control over the goods
unlike a pucca arhatiya who deals as a principal in relation
to both his constituent and to the third party. In a
commercial sense, a kutcha arhatiya acts as an agent on
behalf of his constituent. [552 G-553 B, F]
Bhagwandas Parasram v. Burjorji Ruttonji Bomanji, LR
(1917-18) 45 IA 29, Shivnarayan Kabra v. State of Madras.
[1967] 1 SCR 138, Sobhagmal Gianmal v. Mukundchand Balia,
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L.R. (1926) 53 I.A. 241, Chowringhee Sales Bureau (P) Ltd.
v. C.I.T. West Bengal, [1973] 2 SCR 618, referred to.
2(i) The High Court should have declined to go into the
question of the applicability of s. 7(3) of the Act. When a
question of law was neither raised before the Addl. Judge
(Revisions) nor considered by him nor did it arise on
findings given by him, it will not be a question arising out
of his order. [556 F]
(ii) The question as to whether the Sales Tax Officer
was justified in making a best judgment assessment under
section 7(3) of the Act was not referred to the High Court.
It was, therefore, not open to the High Court to go into the
question. It could not allow the new point to be raised for
the first time in reference. [556 G]
550
(iii) The High Court was also not entitled on a
reference under section 11(4) of the Act to set aside the
findings of the Addl. Judge (Revisions) merely because on a
reappraisal of the evidence it would have come to a contrary
conclusion. It was also not entitled to examine whether the
explanation of the assessee in regard to the deficiencies
found in the account books should or should not be accepted.
[556 H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 717 of 1973.
Appeal by Special Leave from the Judgement and Order
dated 27-10-1972 of the Allahabad High Court in Sales Tax
Ref. No. 857/71.
S. Markandeya, for the Appellants.
O. P. Verma, for the Respondent.
The Judgment of the Court was delivered by
SEN J.-This is an appeal from a judgment of the
Allahabad High Court dated October 27, 1972 which was given
upon a reference of certain questions of law made to the
High Court by the Additional Judge (Revisions), Sales Tax,
Meerut in compliance with its directions under sub-s. (4) of
s. 11 of the U.P. Sales Tax Act, 1948 calling for a
statement of the case. The two questions referred were as
follows:
1. Whether there is no material in support of best
judgment assessment ?
2. Whether on the facts and in the circumstances of
this case the assessee acted in respect of the
estimated purchase turnover of Rs. 3,80,000 as a
dealer so as to be liable to purchase tax ?
The Commissioner of Sales Tax submitted that the first
question should be answered in the negative and the second
in the affirmative. The High Court decided in favour of the
assessee and against the Commissioner, holding that the
submission of the assessee was right and answered both the
questions to the contrary. From this decision the appellant,
the Commissioner of Sales Tax, has appealed.
The reference arose out of assessment for the
assessment year 1967-68 of Messrs Bishamber Singh Layaq Ram
which carries on business in jaggery, amchur, khandsari etc.
on its own account and as kuccha arhatiya in jaggery,
foodgrains etc. at Shahpur in the district of Muzaffarnagar,
and is registered as a dealer under s. 8-A of the Act
(hereinafter referred to as ’the assessee’).
The material facts may be stated as follows: During the
assessment year in question, the Sales Tax Officer,
Muzaffarnagar by his order dated December 27, 1968 rejected
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the account books of the
551
assessee on the basis of some discrepancies found during the
four surveys carried out at his shop and made a best
judgment assessment under sub-s. (3) of s. 7 of the Act,
determining the taxable turnover of purchases effected by it
as a kutcha arhatiya at Rs. 5,30,000 and the tax payable
thereon at Rs. 25,450. On appeal the Assistant Commissioner
(Judicial), Sales Tax, Muzaffarnagar by his order dated
August 11, 1969 reduced the taxable turnover of purchases by
Rs. 1,50,000 and the tax by Rs. 7,500.
There were two cross-revisions by the Commissioner of
Sales Tax and by the assessee, both of which were allowed by
the Additional Judge (Revisions), Sales Tax, Meerut who by
his order dated February 10, 1970 while negativing the plea
of the assessee that he was not a dealer, however, felt that
on the material on record, the taxable turnover of the
assessee could not reasonably be determined at Rs. 3,80,000.
He accordingly set aside the orders of the Assistant
Commissioner (Judicial) and of the Sales Tax Officer and
directed that there should be a fresh best judgment
assessment.
Upon reference, the High Court on question No. 2, as to
the liability of the assessee to tax on transactions
effected by it as kutcha arhatiya held that the assessee was
not a dealer, observing:
"If the assessee is a Kutcha Arhatiya then he is
not liable to sales tax. The change in the definition
of the word ’dealer’ in 1961 upon which the Judge
(Revisions) has relied does not change the situation. A
person can be liable to tax as a dealer only if he acts
as an agent having the authority to pass title in the
goods sold. A kutcha arhatiya merely brings together
the seller and the purchaser and helps in settling the
price and weighing the goods etc. The fact that he
sometimes advances money to cultivators who bring their
produce for sale or sometimes pays the entire sale
price to the cultivator from his own pocket is not
inconsistent with his being a kutcha arhatiya."
It was rightly contended on behalf of the Commissioner
that the High Court was wrong in holding that the assessee
was not a dealer within s. 2(c) of the Act and that the
Sales Tax Officer was not justified in making an assessment
to the best of his judgment under s. 7(3). It is pointed out
that the High Court has completely overlooked Explanation to
s. 2(c) of the Act which was inserted by the U.P. Sales Tax
(Amendment) Act, 1959, particularly the words ’through whom
the goods are sold or purchased’ appearing therein. with
regard to the applicability of s. 7(3), it is urged that the
question was not referred.
552
The finding arrived at by the High Court that the
assessee as a kutcha arhatiya merely brought together the
seller and the buyer charging an additional sum by way of
commission and, therefore, could not be regarded as a
dealer, i.e., a person engaged in the business of buying and
selling goods, is contrary to the admitted facts of the
case. The facts stated in the agreed statement of the case
clearly show that the assessee is not a kutcha arhatiya, in
the usual sense of the term, but his business brings into
existence the relation of vendor and purchaser. The nature
of the business carried on by the assessee is described
thus:
"Cultivators bring their produce to the assessee
for sale. The goods are weighed at his shop and then
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supplied to the pucca arhatiyas or to other persons.
Price of the commodity in full or part is paid by the
assessee to the cultivators directly. The price from
the purchasers is readied afterwards. In any case it is
not the responsibility of the cultivators to realise
the price from the purchasers. On the contrary, it is
the assessee who is responsible for the payment of the
price to the cultivators. Some times the cultivators
are also paid advances and these are adjusted when the
price of the produce is paid to the cultivators."
(Emphasis supplied)
The decision on the question whether the assessee is a
dealer must turn on the construction of s. 2(c), which
insofar as material, reads:
"2(c) "dealer" means any person or association of
persons carrying on the business of buying or selling
goods in Uttar Pradesh, whether for commission,
remuneration or otherwise,
Explanation: A factor, a broker, a commission
agent or arhati, a del credere agent, an auctioneer, or
any other mercantile agent by whatever name called, and
whether of the same description as hereinbefore
mentioned or not, who carries on the business of buying
or selling goods on behalf of his principals, or
through whom the goods are sold or purchased shall be
deemed to be a dealer for the purposes of this Act."
There can be no doubt that a pucca arhatiya comes
within the substantive part of the definition of ’dealer’
contained in s. 2(c) of the Act, but the question still
remains whether a kutcha arhatiya is covered by the
definition, by reason of the Explanation thereto.
The basic distinction between a kutcha and a pucca
arhatiya is that a kutcha arhatiya acts as an agent on
behalf of his constituent and never acts as a principal to
him. The person with whom he enters into a transaction on
behalf of his constituent is either brought into contact
with the constituent or at least the constituent is informed
of
553
the fact that the transaction has been entered into on his
behalf with a particular person. But in the case of a pucca
arhatiya, the agent makes himself liable upon the contract
not only to third parties but also to his constituent. He
does not inform his constituent as to the third party with
whom he has entered into a contract on his behalf.
Thus, a pucca arhatiya acts as a principal as regards
his constituent and not as a disinterested middleman who
brings about two principals together, there being no privity
of contract between the constituent and the third party, and
may substitute his own goods towards the contract made for
the principal and buy the principals goods on his personal
account. On the other hand a kutcha arhatiya usually denotes
a person who merely ’brings together the buyer and the
seller’ charging his commission, who has no dominion or
control over the goods, unlike a pucca arhatiya who deals as
a principal in relation to both his constituent and to the
third party.
The crucial test is whether the agent has any personal
interest of his own when he enters into the transaction or
whether that interest is limited to his commission agency
charges and certain out of pocket expenses, and in the event
of any loss his right to be indemnified by the principal.
This principle was applied in the case of pakki arhat by Sir
Lawrence Jenkins C.J. in Bhagwandas Narotmdas v. Kanji Deoji
and approved of by the Judicial Committee in Bhagwandas
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Parasram v. Burjorji Ruttonji Bomanji and by this Court in
Shivnarayan Kabra v. State of Madras. As to the incidents of
pakkiarhat, Sir Lawrence Jenkins in Bhagwandas Narotamdas’s
case succinctly states the legal position, in his own terse
language:
"A pakka adatia is not, in the proper sense of the
word, an agent or even a del credere agent. The
relation between him and his up-country constituent is
substantially one of principal and principal."
In a commercial sense, a kutcha arhatiya acts as an
agent on behalf of his constituent. The main characteristic
of a kutcha arhatiya has been described by the Judicial
Committee in Sobhagmal Gianmal v. Mukundchand Balia(4) in
these terms:
"When a katcha adatia enters into transactions
under instructions from and on behalf of his up-country
constituent with a third party in Bombay, he makes
privity of contract between the third party and the
constituent, so that each becomes liable
554
to the other, but also he renders himself responsible
on the contract to the third party."
Vivian Bose J. in Kalyanji Kuwarji v. Tirkaram
Sheolal(1) puts the matter thus:
"The test to my mind is this: does the commission
agent when he sells have authority to sell in his own
name? Has he authority in his own right to pass a valid
title? If he has then he is acting as a principal vis-
a-vis the purchasers and not merely as an agent and
therefore from that point or he is a debtor of his
erstwhile principal and not merely an agent. Whether
this is so or not must of course depend upon the facts
in each particular case."
It is plain, on an examination of the language as it
stood at the material time, from the definition of ’dealer’
in s. 2(c) that even a selling or purchasing agent is within
that definition. A person to be a ’dealer’ under that
definition must be engaged in the business of buying and
selling goods in Uttar Pradesh whether for commission,
remuneration or otherwise. Explanation to s. 2(c) brought
within the definition of ’dealer’ not only a commission
agent, a factor, a del credere agent or any other mercantile
agent by whatever name called, and whether of such
description or not, but also a broker, an auctioneer as well
as an arhatiya. The use of the words "through whom the goods
are sold or purchased" in the Explanation is significant,
and they must be given their due meaning. Thus, the
definition of ’dealer’ in s. 2(c) is wide enough to include
a selling or purchasing agent of whatever name or
description. The term ’arhatiya’ is wide enough to include a
kutcha arhatiya.
If the Explanation to s. 2(c) of the Act were not
there, perhaps it could be said that a kutcha arhatiya is
merely an agent who helps cultivators who bring their
produce to the market for sale, to find buyers, assist them
in weighment and secure to them payment of price, but the
assessee here certainly does not answer that description.
That apart, the Explanation clearly brings within the
definition of ’dealer’ in s. 2(c) a kutcha arhatiya. It was
not suggested at any time that the Explanation was ultra
vires the State Legislature being beyond the ambit of Entry
54 of List II of the Seventh Schedule. The constitutional
validity of a similar Explanation to s. 2(c) of the Bengal
Finance (Sales Tax) Act, 1941 which brought an auctioneer
within the purview of the definition of ’dealer’ in that
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section. was upheld by this Court in Chowringhee Sales
Bureau (P) Ltd. v. C.I.T., West Bengal.(2) The whole object
is to tax a transaction of sale in the
555
hands of a person who carries on the business of selling
goods and who has the legal or customary authority to sell
goods belonging to the principal.
It is evident from the statement of the case that the
business carried on by the assessee was more or less similar
to that of a pucca arhatiya and it is a misnomer to call it
a kutcha arhatiya. It actually purchased the goods from the
sellers, i.e., the cultivators, and then sold them in the
market to the other buyers, as if they were its own,
obviously at a profit. It paid to the cultivators the price
of the goods it purchased and received from the buyers the
price at which is sold. Selling of goods was not
simultaneous with receiving them. These facts can lead to no
other conclusion except that it bought and then sold goods
and not merely brought buyers into contact with sellers and
arranged transactions between them. In these circumstances,
the High Court should have held the assessee to be a dealer
under s. 2(c) of the Act, read with the Explanation thereto.
There remains the question whether the High Court was
justified in holding that there was no basis for making a
best judgment assessment. The Addl. Judge (Revisions) had
remanded the case for a reassessment on the basis of best
judgment, on his finding that there was no material whatever
on record to enable him to come to a conclusion one way or
the other, on the disputed question of fact, i.e., whether
the best judgment assessment of the taxable turnover at Rs.
3,80,000 could be sustained.
Though the question of the applicability of s. 7(3) of
the Act was not, in terms, referred to the High Court under
s. 11(4), the Addl. Judge (Revisions) in stating the case
mentioned that the assessee had contended before him that
his account books had been wrongly rejected.
The statement of the case sets out the details of the
various surveys made and the nature of the deficiencies
found. The High Court treating the question referred to be a
composite one, embarked upon an enquiry as to whether the
Sales Tax Authorities were justified in rejecting the
account books and in making the best judgment assessment
under s. 7(3). It has referred to the four surveys carried
out on August 11, 1967, December 13, 1967, January 7, 1968
and March 8, 1968. In the first survey held on August 11,
1967 it was found that the Nagal Bahi had not been written
for eleven days. The High Court observes that ’no adverse
inference could be drawn on this account because the
assessee’s explanation was that there were no cash
transactions for this period, and, therefore, the Nagal Bahi
had not been written’. With regard to the second survey
carried out on December 13, 1967 it was discovered that
there was
556
a loose parcha containing several entries. One of the
entries of Rs. 371.17 in the name of Sakh Chand Udit Mohan
alone was entered in the account books. That too on December
13, 1967 after inspection while the payment was actually
made on December 11, 1967, i.e., it was not contemporaneous
with the transaction. The High Court observes that ’it has
not been found that any other entry contained in the loose
parcha had not been entered in the account books’, With
regard to the third survey carried out on January 7, 1968
when twelve bags of wheat were found in stock, the stock
register was not shown to the surveying officer. The High
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Court has again accepted the explanation of the assessee
saying that ’there was no duty cast on the assessee to
produce the stock register and it was not shown since there
was no demand for it’. It observes that ’there is nothing in
s. 13 or in any other provisions of the Act or the rules
framed thereunder which requires a dealer to produce his
books of accounts and other documents, before the surveying
officer’. As regards the last survey held on March 8, 1968
the Mondhi Bahi was found to be posted upto February 29,
1968. Thus there were no entries for eight days. The
explanation of the assessee was that it had not entered into
any contract during the eight days in question. The High
Court observes that ’as there was no material whatever for
rejecting his explanation, no adverse inference could be
drawn with regard to the veracity of the accounts, since
Mondhi Bahi is not a necessary account book’. We are not
inclined to agree with this line of reasoning. While we
refrain from expressing any opinion on the requirements of
s. 13(2) of the Act, we are satisfied that the finding of
the High Court that there was nothing wrong with the method
of accounting adopted by the assessee cannot be upheld.
In our opinion, the High Court should have declined to
go into the question of the applicability of s. 7(3) of the
Act. When a question of law was neither raised before the
Addl. Judge (Revisions) nor considered by him nor did it
arise on the findings given by him, it will not be a
question arising out of his order.
The question as to whether the Sales Tax officer was
justified in making a best judgment assessment under s. 7(3)
of the Act was not referred to the High Court. It was,
therefore, not open to the High Court to go into the
question. It could not allow the new point to be raised for
the first time in reference. Nor was the High Court entitled
on a reference under s. 11(4) of the Act to set aside the
finding of the Addl. Judge (Revisions) merely because on a
reappraisal of the evidence it would have come to a contrary
conclusion. It was also not entitled to examine whether the
explanation of the assessee in regard to the deficiencies
found in the account books
557
should or should not be accepted. It may be that the Sales
Tax Authorities should have accepted the explanation of the
assessee with regard to the aforesaid deficiencies, but it
may as well be that there are various other deficiencies
which the assessee will have still to explain.
For all these reasons, the judgment of the High Court
is set aside and that of the Addl. Judge (Revisions), Sales
Tax Meerut remanding the case for a fresh judgment
assessment under s. 7(3) of the Act is restored. There shall
be no order as to costs.
N.V.K. Appeal allowed.
558