Full Judgment Text
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PETITIONER:
CARDAMOM PLANTERS ASSOCIATIONBODINAYAKANUR
Vs.
RESPONDENT:
DEPUTY COMMISSIONER OF SALES TAX (LAW)BOARD OF REVENUE (TAXE
DATE OF JUDGMENT07/08/1989
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
MUKHARJI, SABYASACHI (J)
CITATION:
1989 AIR 2202 1989 SCR (3) 719
1989 SCC (4) 179 JT 1989 (3) 398
1989 SCALE (2)233
ACT:
The Kerala (Surcharge on Taxes) Act 1957--Section 3-Levy
of surcharge on Sales Tax--Society composed of Cardamom
growers-Whether liable for levy of Surcharge in respect of
sales effected on behalf of members of society.
HEADNOTE:
The appellant--assesse is a Society registered under the
Societies Registration Act. Its members are Cardamom growers
in the State of Kerala. The Society conducts the business as
an auctioneer under a licence issued to it under the Carda-
mom Act (Act 42 of 1965) read with the Cardamom (Licensing
and Marketing) Rules, 1977, one of the Conditions of this
licence being that as an auctioneer it shall not charge more
than one percent of the sale price as commission for the
services rendered by it. It is common ground that the socie-
ty has obtained the relevant licence and the individual
members/growers of Cardamom had no such licence. The mode of
the business was that planters left their produce with the
Society and the Society after mixing the produce of all the
growers, put the same to auction. The Society collected 1%
as commission out of the sale proceeds from each of the
planters. Besides cardamom, the Society sold other goods
also.
The Kerala General Sales Tax Act 1963 imposes sales tax
on every dealer whose total turnover for any year exceeds a
specified sum which differed from year to year. In 1957 the
Kerala Legislature introduced a surcharge on sales tax.
Section 3 of the Kerala Surcharge on taxes Act 1957 pre-
scribes that the tax payable under the Kerala General Sales
Tax Act 1963, shall, in the case of a dealer whose turnover
exceeds Rs.30,000 a year, be increased by a surcharge at the
rate of 5% of the tax payable for that year. The provisions
of the Kerala General Sales Tax Act were made applicable to
the levy and collection of the said surcharge. Kerala Act 40
of 1976 stepped up the .rate of surcharge. The important
feature of the latter Act is that unlike sales tax, which
the dealer was entitled to get reimbursed from the purchaser
of the goods sold by him, the surcharge had to be borne by
the dealer himself, as
720
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Sub-Section (2) of Section 3 of the Surcharge Act prohibited
the dealer from collecting the surcharge payable by him.
Further the dealer might be liable for sales tax at differ-
ent rates on the turnover of the different goods dealt with
by him, he was to pay surcharge calculated on the amount of
the sales tax payable by him in respect of his total deal-
ings throughout the year.
The assessee’s contention was that the Society sold
goods only in its capacity as a commission agent for various
principals and that on the general principle of agency, an
agent like the assessee could be liable to surcharge only to
the same extent as the principal whom it represented. On
this plea, it could not be made liable for any surcharge in
respect of the sales effected by it on behalf of the princi-
pals whose sales through the Society did not exceed the
limits set out in Sec. 3(1) of the Surcharge Act.
The Tribunal had accepted the above contention of the
appellant in the appeals against the assessment for the
assessment years 1967-68 to 1969-70. The sales Tax assess-
ments of the appellant for the assessment years 1973-74 to
1976-77 were completed by the Sales Tax Officer following
the aforesaid order of the Tribunal. These assessments were
set aside by the Dy. Commissioner of Sales Tax who took the
view that the Society was liable to pay surcharge on its
aggregate turnover in each of the assessment years. The
appellant-assessee preferred appeals to the Appellate Tribu-
nal against the orders of the Deputy Commissioner. The
Tribunal allowed the appeals following its order relating to
the earlier assessment years. It accordingly set aside the
orders of the Dy. Commissioner and restored the assessments
made by the Sales Tax Officer for the assessment years
1973-74 to 1976-77. The Department moved revision petitions
before the High Court against the order of the Appellate
Tribunal. The High Court accepted the revision of the De-
partment and set aside the order of the Tribunal. Hence
these appeals by the assessee.
It was contended by the appellant (i) that the liability
of an agent is co-extensive with that of principal and its
liability cannot be higher than that of principal; (ii) that
it is contrary to the principle underlying rule 9(k) of the
Kerala General Sales Tax Act whereunder the turnover of
sales or purchases made by a dealer through his agent in
respect of which tax has been paid by the agent, is excluded
from his taxable turnover and (iii) that the assessee has
been placed in a financial predicament in that it has to pay
he surcharge from out of the meagre commission of 1% limited
by the statute.
721
Dismissing the appeals, this Court,
HELD: The Surcharge Act does not envisage a fresh deter-
mination of the assessee’s turnover at all. It prescribes
nothing more than a simple arithmetical calculation of the
prescribed percentage on the sales-tax determined as payable
by the assessee for that year. It does not permit the compu-
tation of the surcharge, for whatever reason, on a part only
of the tax determined as payable by the assessee for the
year in question. It does not contemplate any dissection of
the turnover into transactions on behalf of various princi-
pals by reference to their individual liability to pay
either sales tax or surcharge. The contentions urged on
behalf of the petitioner create a number of difficulties and
or about a very simple procedure, evolved by the statute to
meet the present situation- It brought the Commission agent
within the definition of a dealer and made his aggregate
turnover liable to tax. But it provided at the same time
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that the turnover so included and taxed in the hands of the
agent should he excluded from the turnover of the principal,
where he is separately assessed. [726C-D, 727E-F, 728C]
Rule 9(k) confers an exemption not on the Commission
agent but on the Principal and does not help the assessee.
[728D]
The rate of tax on any type of goods being uniform
irrespective of the turnover, the turnover in regard to that
item will get assessed only at one place: either in the
hands of the principal or in the hands of the agent but not
both. [728D]
A suggestion was mooted before us that the hardship to
the assessee on this account is so substantial that this
requirement should be held to he an unreasonable restriction
violating Article 19. This is a new contention involving
investigation into facts which this Court is not inclined to
permit the assessee to raise here for the first time.
[728G-H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 326164
of 1988.
From the Judgment and Order dated 3.7.1987 of the
Kerala High. Court in T.R.C. Nos. 54 to 57 of 1983.
A.K. Ganguli and C.N. Sreekumar for the Appel-
lant.
A.S. Nambiar and K.R. Nambiar for the Respond-
ents.
The Judgment of the Court was delivered by
722
RANGANATHAN, J. M/s. Cardamom Planters’ Association,
Bodinayakanur, (hereinafter referred to as ’the society’)
appeals from orders of the Kerala High Court upholding its
liability to the levy of surcharge under the Kerala (Sur-
charge on Taxes) Act, 1957, as amended in 1970.
The Kerala General Sales Tax Act, 1963, imposes sales
tax on every dealer whose total turnover for any year ex-
ceeds a specific sum. The sum prescribed was initially Rs.
10,000 but was gradually stepped up to Rs.20,000 in 1971,
Rs.25,000 in 1976, Rs.35,000 in 1980, Rs.50,000 in 1981,
Rs.75,000 in 1982 and Rs.1 lakh in 1984. The expressions
’dealer’, ’taxable turnover’, ’total turnover’ and ’turn-
over’ are defined in section 2 of the Act. The relevant
portions of these definitions read as follows:
Section 2 (viii)
"Dealer" means any person who carries on the
business of buying, selling, supplying or
distributing goods, executing works contract,
transferring the right to use any goods or
supplying by way of or as part of any service,
any goods directly or otherwise, whether, or
for cash or for deferred payment, or for
commission, remuneration or other valuable
consideration and includes.
(b) XX XX
XX
(c) a commission agent, a broker or a del
credere agent or an auctioneer or any other
merchantile agent, by whatever name called,
who carries on the business of buying, sell-
ing, supplying or distributing goods (execut-
ing works contract, transferring the right to
use any goods or supplying by way of or as
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part of any service, any goods) on behalf of
any principal."
Section 2 (xxiv)
"taxable turnover" means the turnover on which
a dealer shall be liable to pay tax as deter-
mined after making such deductions from his
total turnover and in such manner as may be
prescribed ...
Section 2 (xxvi)
723
"total turnover" means the aggregate turnover
in all goods of a dealer at all places of
business in the State, whether or not the
whole or any portion of such turnover is
liable to tax .........
Section 2 (xx vii)
"turnover" means the aggregate amount for
which goods are either bought or sold, or
supplied or distributed, by a dealer, either
directly or through another, on his own ac-
count or, on account of others, whether for
cash or for deferred payment or other valuable
consideration, provided that the proceeds of
the sale by a person of agricultural or horti-
cultural 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 turn-
over.
Explanation (i)"Agricultural or horticultural
produce" shall not include--
XXX XXX
XXX
(ii) tea, coffee, rubber, cardamom or timber.
XXX XXX
XXX
In 1957, the Kerala Legislature introduced
a surcharge on sales tax. Section 3 of the
Kerala Surcharge on Taxes Act, 1957 reads as
follows:
"The tax payable under the Kerala General
Sales Tax Act, 1963, shall, in the case of a
dealer whose turnover exceeds Rs.30,000 a
year, be increased by a surcharge at the rate
of five per centum of the tax payable for that
year and the provisions of the Kerala General
Sales Tax Act, 1963 shall, as the case may be,
apply to the levy and collection of the said
surcharge."
Kerala Act 40 of 1976 stepped up the rate of
surcharge by amending section 3(1) to read as
follows:
(1) The tax payable under the Kerala General
Sales Tax Act, 1963, shall, in the case of a
dealer whose turnover--
724
(a) is not less than one lakh rupees but does
not exceed ten lakhs rupees in a year, be
increased by a surcharge at the ,rate of five
per centum, and
(b) exceeds ten lakhs rupees in a year, be
increased by a surcharge at the rate of eight
per centum,
of the tax payable for that year and the
provisions of the Kerala General Sales Tax
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Act, 1963, shall apply in relation to the said
surcharge as they apply in relation to the tax
payable under the said Act.
We may note here two important features of the latter
Act. the first is that, unlike sales tax which the dealer is
entitled to get reimbursed from the purchaser of the goods
sold by him, the surcharge has to be borne by the dealer
himself, for sub-section (2) of section 3 of the Surcharge
Act prohibits the dealer from collecting the surcharge
payable by him under sub-section (1) on pain of prosecution
under sub-section (3). The second is that while a dealer
might be liable to sales tax at different rates on the
turnover of the different goods dealt in by him, he has to
pay a surcharge calculated on the amount of the sales tax
payable by him in respect of his total dealings throughout
the year.
The assessee is a society registered under the Socie-
ties’ Registration Act. Its members are cardamom growers in
the State of Kerala. Under the Cardamom Act (Act 42 of
1965), read with the Cardamom (Licensing & Marketing) Rules,
1977, no person is entitled to carry on business as auction-
eer, dealer or exporter of cardamom except under and in
accordance with the terms and conditions of a licence issued
under the Act and Rules. One of the conditions of the grant
of licence to a person as an auctioneer is that he "shall
not charge more than one per cent of the sale price as
commission for the services rendered by him". It is common
ground that it is the society that has obtained the relevant
licence for this purpose and that the individual cardamom
growers who are members of the society have no such licence.
The society conducts weekly cardamom auction sales at
two places, Santhanpara and Bodinayakanur. The planters
leave their produce with the society. The produce of all the
growers is mixed together and put to auction. It is open to
the planters to be present at the auction. If any planter
desires to sell at a specific price he can express his
opinion in advance to the association. If he wants to with-
draw his lot put up for sale he could do so. Stitching
charges and miscellaneous
725
charges are to be paid to the society. The society collects
1% as commission out of the sale proceeds from each of the
planters. Besides sale of cardamom, which constitutes the
major part of its turnover, the society also sells other-
goods such as gunnies, pesticides, sprayers, manure and the
like.
It is contended on behalf of the appellants that the
society has sold the goods only in its capacity as a commis-
sion agent for various principals and that, on the general
principles of agency, an agent like the assessee can be
liable to surcharge only to the same extent as the principal
whom it represents. Hence it cannot be made liable for any
surcharge in respect of the sales effect by it on behalf of
principals whose sales through the society do not exceed the
limits set out in s. 3(1) of the Surcharge Act.
The above contention was accepted by the Tribunal in the
appeals against the assessments made on the society for the
assessment years 1967-68 to 1969-70. The sales tax assess-
ments of the society for 1973-74 to 1976-77 were completed
by the ’Sales Tax Officer on the basis of the Tribunal’s
order. These assessments were, however, set aside by the
Deputy Commissioner of Sales tax who was of the opinion that
the society was liable to pay surcharge on its aggregate
turnover in each of these years and he directed accordingly.
The assessee preferred appeals to the Appellate Tribunal
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from the orders of the Deputy Commissioner. The Tribunal
allowed the appeals by a common order dated 3rd November,
1982 following its order for the earlier assessment years.
It set aside the revisional orders passed by the Deputy
Commissioner and restored the assessments made by the Sales
Tax Officer for the assessment years 1973-74 to 1976-77. The
High Court, on revision by the Department, has set aside the
orders of the Tribunal and restored the orders of the Deputy
Commissioner. Hence these appeals.
We are unable to see any flaw in the High Court’s rea-
soning. The present assessee is clearly a dealer within the
meaning of the statute, particularly in view of the inclu-
sive part of the definition contained in
clause (c). This is also the finding of the Tribunal and is
also admitted by the assessee. Likewise, the provisions of
S. 5 of the Sales Tax Act and S. 3 of the Surcharge Act,
read with the definitions of the words ’turnover’ ’taxable
turnover’ and ’total turnover’, leave no doubt that the
assessee’s taxable turnover has to be determined by taking
the aggregate price of all the goods sold by it. There is no
statutory warrant for breaking-up the sales turnover of the
assessee by reference to
726
the turnover of the principals on whose behalf it deals.
Also, a logical corollary of the assessee’s argument would
be that, even in respect of tax, the society can be assessed
to sales tax only on the aggregate turnover relating to
those of its principals who are liable to tax under section
5 of the Act. The High Court has rightly pointed out that
the assessee had not claimed, for purposes of sales tax,
that the turnover of goods dealt with by it on behalf of
principals who did not have a taxable turnover should be
excluded. If this be so, the High Court observes rightly, it
is difficult to see on what principle the assessee can seek,
in the matter of surcharge, the exclusion from its taxable
turnover, of the turnover of principals who would not have
been subjected to a surcharge if they had directly sold the
goods entrusted by them to the assessee for sale. This is
particularly so because the Surcharge Act does not envisage
a fresh determination of the assessee’s turnover at all. It
prescribes nothing more than a simple arithmetical calcula-
tion of the prescribed percentage on the sales tax deter-
mined as payable by the assessee for that year. There can be
no doubt about this figure. The statute does not permit the
computation of the surcharge, for whatever reason, on a part
only of the tax determined as payable by the assessee for
the year in question.
On behalf of the assessee, objection has been taken to
the levy of surcharge in the manner in which it has been
levied on three grounds:
1. The general principle of law is that the
liability of an agent is co-extensive with
that of the principal and his liability to tax
or surcharge, in respect of transactions put
through on behalf of a principal, cannot be
higher than that which the principal would
have himself incurred had he directly sold the
goods;
2. It is contrary to the principle
underlying rule 9(k) of the Kerala Sales Tax
Rules under which "the turnover of sales or
purchases made by a dealer through his agent
in respect of which tax has been paid by the
agent" is excluded from his taxable turnover;
3. The assessee has been placed in a
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financial predicament because .all that the
assessee can get out of the sales is the
commission which cannot exceed 1% of the turn-
over and, since the statute has prohibited it
from collecting any part of the surcharge from
the purchasers or the principals the society,
has to meet the surcharge liability out of its
meagre commission earnings.
We are unable to see how these contentions can
help the assessee
727
to overcome the surcharge levy. The general principle of the
law of agency, as rightly pointed out by the High Court,
cannot prevail in the face of the statutory provisions. The
assessee’s contention, upheld by the Tribunal in its earlier
order, is this:
" ..... an agent is as many dealer as he has
principals ... an agent can be assessed ...
only on the aggregate of the turnover relating
to principals who are liable to tax under
section 5 and surcharge can likewise be levied
only in respect of the turnover of the princi-
pals where total turnover is not less than
Rs.30,000."
This will also mean that, after the amendment of s. 3 of the
Surcharge Act in 1976 that the agent will be liable to a
surcharge at 8% in respect of the turnover on behalf of
principals whose total turnover exceeds Rs. 10 lakhs, at 5%
in respect of the turnover on behalf of principals having
turnover of between Rs.1 lakh and Rs. I0 lakhs and no sur-
charge in respect of the turnover on behalf of principals
with turnovers of less than Rs. 1 lakh. This may be equita-
ble but it clearly amounts to running a coach and pair
through the statutory provisions. As already pointed out,
these provisions clearly treat a commission agent as a
dealer and make him liable to sales tax as well as surcharge
in respect of his entire turnover. The Act does not contem-
plate any dissection of this turnover into transactions on
behalf of various principals by reference to their individu-
al liability to pay either sales tax or surcharge.
The question of statutory interpretation apart, it will
easily be seen that the assessee’s contention, which is
equally applicable to the levy of both sales tax and sur-
charge, would make the whole Act unworkable. A commission
agent will be dealing on behalf of hundreds of constituents
and each of his constituents may be dealing not only through
him but also through several other agents. The transactions
may not be confined to the territories of one State and may
be spread over the entire Indian sub-continent. The sales
through different agents may be of different goods attract-
ing liability to tax at different rates. It may be that a
principal whose sales through one commission agent may not
come upto the limits of turnover for levy of tax or sur-
charge may have been dealing through other agents and, if
assessed directly, may have a turnover exceeding those
limits. In this state of affairs, it will be absolutely
impracticable, if not impossible, for a Sales Tax Officer
having jurisdiction over one particular commission agent to
make his sales tax assessment on the basis suggested
728
by the assessee. That would require the collection of data,
in the assessment of every commission agent, regarding the
entire sales turnover of each of his constituents who may or
may not be assessed by the officer assessing the particular
commission agent. The assessment order on the commission
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agent would then have to be split up, as it were , into a
number of parts each containing the determination of turn-
over, tax and surcharge qua each of the constituents. These
determinations require exercises which cannot be practically
undertaken by an officer assessing a commission agent but
can easily be undertaken by the different officers assessing
the principals. That is why the statute evolved a very
simple procedure to meet the situation. It brought the
commission agent within the definition of a dealer and made
his aggregate turnover liable to tax. But it provided at the
same time that the turnover so included and taxed in the
hands of the agent should be excluded from the turnover of
the principal, where he is separately assessed. This is rule
9(k). Rule 9(k) confers an exemption not on the commission
agent but on the principal and does not help the assessee.
So far as sales tax is concerned, this rule provides com-
plete protection against double taxation. The rate of tax on
any type of goods being uniform irrespective of the turn-
over, the turnover in regard to that item will get assessed
only at one place: either in the hands of the principal or
in the hands of the agent but not both. The treatment of the
commission agent as a dealer no doubt means that an agent
will be taxed where his turnover exceeds the relevant limits
even though some or all the principals who sold through him
may have turnovers below those limits. But he is not really
affected as he can collect the sales tax from the purchasers
and thus reimburse himself.
The difficulty that has arisen in regard to the sur-
charge stems principally from the requirement that the
society has to pay it out of its funds and cannot reimburse
itself either from its vendees or its principals. This
difficulty has been further accentuated by the fact that, in
regard to cardamom, its earnings are limited to a small
commission which cannot be varied by it at its desire. These
considerations cannot however justify a different interpre-
tation as the statutory provisions are clear.
A suggestion was mooted before us that the hardship to
the assessee on this account is so substantial that this
requirement should be held to be an unreasonable restriction
violating article 19. This is a new contention involving
investigation into facts which we are not inclined to permit
the assessee raise here for the first time. We may, howev-
er, mention that during, the hearing of these appeals, we
729
adjourned the appeals to enable the assessee to move the
State in this behalf but we were told that its efforts were
unsuccessful. We need hardly say that the assessee will be
at liberty to pursue the matter, put forward its difficul-
ties and seek to persuade the State Government to either
reduce or dispense with the surcharge in regard to cardamom
sales or to sanction an increase in the rate of commission
chargeable by the assessee on its cardamom sales and, fail-
ing such efforts, to challenge the validity of the levy for
the future, if so advised, in appropriate proceedings.
In the circumstances, we affirm the view taken by the
High Court and dismiss these appeals. We, however, make no
order as to costs.
Y. Lal Appeals
dismissed.
730