Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8
PETITIONER:
STATE OF MYSORE
Vs.
RESPONDENT:
YADDALAM LAKSHMINARASIMHAIAH SETTY AND SONS
DATE OF JUDGMENT:
10/11/1964
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION:
1965 AIR 1510 1965 SCR (2) 129
CITATOR INFO :
RF 1969 SC 147 (21)
E 1973 SC1325 (3,4)
R 1975 SC1604 (1,5,7,8,9)
ACT:
Central Sales Tax Act (74 of 1956), ss. 6, 8(2) and 9 and
Mysore Sales Tax Act (25 of 1957), s. 5(3)(a)-Inter-State
sale of powerloom textiles-Assessee not the first or
earliest dealer in State-Liability to tax.
HEADNOTE:
The assessee was a dealer in Mysore dealing in powerloom
textiles. His turnover in the course of inter-state trade
was assessed and taxed by the Commercial Tax Officer, under
s. 9 of the Central Sales Tax Act, 1954, before its
amendment in 1958. The order was upheld by the Deputy
Commissioner of Commercial Taxes and the Sales Tax Appellate
Tribunal. The High Court, in revision, held that the sales
were not "first sales" within the State, and that not being
exigible to tax under the State Sales Tax Act (Mysore Act 25
of 1957), no tax was payable under the Central Act. The
State appealed to the Supreme Court and contended that the
assessee was liable to be taxed because of s. 6 of the
Central Act
HELD : (Per Subba Rao and Sikri, JJ.) Though s. 6 of the
Central Act is the charging section the liability to pay tax
is subject to the other provisions in the Act. Section 8(2)
provides that tax shall be calculated at the same rates and
in the same manner as would have been done if the had in
fact, taken place inside the appropriate State, and s. 9
provides that, under the Central Act, tax shall be levied in
the same manner as the tax on the sale or purchase of goods,
under the general sales tax law of the State is assessed,
paid and collected. The word "levied" means "imposed" and
since s. 5(3)(a) of the Mysore Sales Tax Act, read with
Schedule H of that Act provides that the tax shall be
levied, in the case of powerloom goods on the first or the
earliest of successive dealers in the State, and the
assessee was not such a dealer, no tax could be levied on
him in respect of the disputed turnover. Such a
construction avoids the anomaly of the State collecting tax
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8
on powerloom textiles only at a single point and the Centre,
through the agency of the State authorities, collecting the
said tax for and on behalf of the State at multi-points.
[131 A; 132 G; 133 B, D-F, H]
Per Shah, J. (dissenting) : The High Court was in error in
regarding We* other than the first sales as exempted from
liability to pay tax under the Central Act, when the sales
sought to be taxed, were in the course of inter-state trade
or commerce. [138 C-D]
Section 6 of the Central Act charges inter-state
transactions to tax. ’Me function of a. 8(2) is to
prescribe the rate and the manner of calculation of tax : it
is not intended to incorporate the entire procedural and
substantive State law relating to tax. Section 9(1) and (2)
establish that the machinery of assessment, collection and
enforcement of liability prescribed by the State statute
alone is incorporated in the Central Act. Neither s. 8(2)
nor s. 9 cut down the plenary charge imposed by a. 6, nor
130
do they attract any exemptions from tax prescribed by the
State law. [136 B-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 165 of 1964.
Appeal by special leave from the judgment and order dated
January 22, 1962, of the Mysore High Court in Civil Revision
Petition No. 964 of 1961.
S. V. Gupte, Solicitor-General, M. S. K. Sastri and B. R.
G. K. Achar, for the appellant.
R. Gopalakrishnan, for the respondent.
The Judgment of Subba Rao and Sikri JJ. was delivered by
Sikri J. Shah J. delivered a dissenting Opinion.
Sikri, J. This is an appeal by special leave directed
against the judgment of the Mysore High Court accepting the
revision petition of the respondent before us, hereinafter
referred to as the assessee.
The relevant facts are these. The assessee is a dealer in
powerloom and handloom textiles, both within the Mysore
State and in the course of inter-State trade. For the year
1957-58, the Commercial Tax Officer, Bangalore, assessed and
taxed the turnover relating to powerloom textiles under S. 9
of the Central Sales Tax Act (LXXIV of 1956), hereinafter
referred to as the Central Act, as it stood before its
amendment by the Central Sales Tax (Second Amendment) Act,
1958 (XXX of 1958). This was upheld by the Deputy
Commissioner of Commercial Taxes. The Mysore Sales Tax
Appellate Tribunal also affirmed the order. The High Court,
in revision, accepted the plea of the assessee that its
turnover consisting of sales of textiles manufactured by
means of powerlooms in the course of inter-State trade is
liable to be taxed at the same rate and exactly in the same
manner as they would have been taxed if they had been intra-
state transactions. The High Court arrived at this
conclusion because, according to it, the true construction
of s. 8 (2) of the Central Act is that any exemption given
by a State Sales Tax Act or the point determined by it at
which a sale is to be taxed applies to assessments under the
Central Act.
131
The assessee’s plea, in brief, is that he is not the first
or earliest of the successive dealers of the disputed
turnover, and, therefore, if he had sold the goods
intrastate, no tax would have been levied on him. The reply
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8
of the Department is that this is true but under the Central
Act he is liable to be taxed because of s. 6, and the point
at which a turnover is taxed has nothing to do with the man-
ner of calculation of tax.
The relevant sections of the Central Act are as follows
"6. Liability to tax on inter-State sales :-
Subject to the other provisions contained in
this Act, every dealer shall, with effect from
such date as the Central Government may, by
notification in the Official Gazette, appoint,
not being earlier than thirty days from the
date of such notification, be liable to pay
tax under this Act on all sales effected by
him in the course of inter-State trade or
commerce during any year on and from the date
so notified.
8. Rate of tax on sales in the course of
inter-State trade or commerce
(1) Every dealer who, in the course of
inter-State
trade or commerce sells to a registered dealer
goods of the description referred to in sub-
section (3) shall be liable to pay tax under
this Act, which shall be one per cent of his
turnover :
Provided that, if under the sales tax law of
the appropriate State, the sale or purchase of
any goods by a dealer is exempt from tax
generally and not in specified cases or in
specified circumstances or is subject to tax
(by whatever name called) at a rate or rates
which is or are lower than the rate specified
in subsection (1), the tax payable under this
Act on the turnover in relation to sale of
such goods in the course of inter-State trade
or commerce shall be nil or shall be
calculated at the lower rate, as the case may
be.
(2)The tax payable by any dealer in any
case not falling within sub-section (1) in
respect of the sale by him of ’any goods in
the course of inter-State trade or commerce
shall be calculated at the same rates and in
the same manner as would have been done if the
sale had, in fact, taken place inside the
appropriate State; and for
132
the purposes of making any such calculation
any such dealer shall be deemed to be a dealer
liable to pay tax under the sales tax law of
the appropriate State, notwithstanding that
he, in fact, may not be so liable under that
law.
9.Levy and collection of tax.-(1) The tax
payable by any dealer under this Act shall be
levied and collected in the appropriate State
by the Government of India in the manner
provided in sub-section (2).
(2)The authorities for the time being
empowered to assess, collect and enforce
payment of any tax under the generalsales
tax law of the appropriate State shall, on
behalf of the Government of India and subject
to any rules made under this Act, assess,
collect and enforce payment of any tax payable
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8
by a dealer under this Act in the same manner
as the tax on the sale or purchase of goods
under the general sales tax law of the State
is assessed, paid and collected; and for this
purpose they may exercise all or any of the
powers they have under the general sales tax
law of the State; and the provisions of such
law, including provisions relating to returns,
appeals, reviews, revisions, references,
penalties and compounding of offences, shall
apply accordingly.
(3)The proceeds (reduced by the cost of
collection) in any financial year of any tax
levied and collected under this Act in any
State on behalf of the Government of India
shall, except insofar as those proceeds repre-
sent proceeds attributable to Union
territories, be assigned to that S
tate and
shall be retained by it; and the proceeds
attributable to Union territories shall form
part of the Consolidated Fund of India."
Section 6 of the Central Act is the charging section. Sub-
ject to the other provisions contained in the Act, every
dealer is liable to pay tax under the Act on all sales
effected by him. It will be noticed that the liability is
not absolute but subject to the other provisions of the Act.
If the effect of another provision is to take away the
liability, effect will have to be given to it. Section 8
prescribes the rates of tax to be levied. It is common
ground that s. 8 (1) does not apply to the facts of the
case, but the proviso is important as it indicates that in
some cases falling within the proviso the rate may be nil.
In other words, notwithstanding S. 6, the dealer, may not be
liable to pay any tax if
133
he comes within the proviso to & 8 1 ). It follows that the
scheme of the Act is not that every transaction in inter-
State trade must bear some tax.
Section 8(2) provides for the method of calculating the tax;
under that sub-section, the tax shall be calculated at the
same rates and in the same manner as would have been done if
the sale had, in fact, taken place inside the appropriate
State. The expression "in the manner" may give rise to two
conflicting views, namely, (i) it is concerned only with the
calculation of the tax, and (ii) it deals not only with the
calculation of the rates but also the manner of levy of the
tax. But s. 9(1) dispels the ambiguity for it says that the
tax payable by any dealer under the Central Act shall be
levied and collected in the appropriate State by the
Government of India in the manner provided in sub-section
(2); and sub-s. (2) of s. 9 empowers the appropriate State
authorities to assess, collect and enforce payment of any
tax payable by any dealer under the Central Act in the same
manner as the tax on the sale or purchase of goods under the
general sales tax law of the State is assessed, paid and
collected. The expression "levy’ means "impose". Under s.
5(3) (a) of the Mysore Sales Tax Act, 1957, hereinafter
called the State Act, tax shall be levied in the case of the
sale of any of the goods mentioned in col. (2) of the Second
Schedule by the first or the earliest of successive dealers
in the State, who is liable to tax under that section, a tax
at the rate specified in the corresponding entry of Col. (3)
of the said Schedule on the turnover of sales of such dealer
in each year relating to such goods. When s. 9(1) says that
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8
under the Central Act tax shall be levied in the same manner
as the tax on the sale or purchase of goods under the
general sales tax law of the State is assessed, paid and
collected, it is reasonable to hold that the expression
"levied" in s. 9(1) of the Central Act refers to the
expression "levied" in s. 5 (3) (a) of the State Act. There
is no reason why the Central Act made a departure in the
manner of levy of tax on the specified goods which are taxed
only at a single point under the State Act : if any such
radical departure was intended, the Central Act would have
expressly stated so. The Central Act was passed to levy and
collect sales-tax on interState sales to avoid confusion and
conflict of jurisdictions; the tax is also collected only
for the benefit of the States. Therefore. the construction
we accept avoids the anomaly of the State collecting tax on
powerloom textiles only at a single point and the Centre,
through the agency of the State authorities, collecting the
said tax for and on behalf of the State at multi-points.
134
There has been considerable difference of opinion among the
High Courts about the true construction of S. 8(2), but none
of them have relied on S. 9 of the Central Act. Therefore,
it is not necessary to refer to cases cited before us.
For the foregoing reasons we hold, though for different rea-
sons, that the order of the High Court is correct. In the
result, the appeal is dismissed with costs.
Shah, J. The High Court of Mysore has held that sales which
were not "first sales" within the Mysore State being not
exigible to tax under the Mysore Sales Tax Act, no tax was
payable thereon under the Central Sales Tax Act, 1956.
The provisions of the Central Sales Tax Act in force at the
relevant time may be briefly referred to. Section 6 imposes
upon ;every dealer, subject to the other provisions
contained in the Act, liability to pay tax under the Act on
all sales effected by him in the course of inter-State trade
or commerce during any year. Section 7 provides for
registration of dealers. Section 8 deals with the rates of
tax on sales in the course of inter-State trade or commerce.
By sub-s. (2), as it stood at the relevant time, it was
provided :
"The tax payable by any dealer in any case not
falling within sub-section (1) in respect of
the sale by him of any goods in the course of
inter-State trade or commerce shall be
calculated at the same rates and in the same
manner as would have been done if the sale
had, in fact, taken place inside the
appropriate State and for the purpose of
making any such calculation any such dealer
shall be deemed to be dealer liable to pay tax
under the sales tax law of the appropriate
State, notwithstanding that he, in fact, may
not be so liable under that law."
Section 9 provided for levy and collection of
tax. It provided
"(1) The tax payable by any dealer under this
Act shall be levied and collected in the
appropriate State by the Government of India
in the manner provided in subsection (2).
(2)The authorities for the time being
empowered to assess, collect and enforce
payment of any tax under the general sales tax
law of the appropriate State shall, on behalf
of the Government of India and subject to any
135
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8
rules made under this Act, assess, collect and
enforce payment of any tax payable by a dealer
under this Act in the same manner as the tax
on the sale or purchase of goods under the
general sales tax law of the State is
assessed, paid and collected; and for the
purpose they may exercise all or any of the
powers they have under the general sales tax
law of the State; and the provisions of such
law, including provisions relating to returns,
appeals, reviews, revisions, references,
penalties and compounding of offences, shall
apply accordingly.
(3)
The turnover of the respondents sought to be taxed arises
out of transactions of sale of handloom and powerloom cloth
effected by them in the course of inter-State trade or
commerce. Under the Mysore Sales Tax Act, 1957, sale of
these goods was liable to tax under S. 5 (3 ) (a) read with
Entry 7 in Sch. II of the Act, at a single point on sale by
the first or the earliest of successive dealers in the
State. It is common ground that the respondents are not the
first or the earliest of successive dealers in the State in
respect of the transactions sought to be taxed. Section 6
charges to tax sales in the course of inter-State trade or
commerce of every dealer, but the Act does not prescribe the
rates at which tax is to be levied, nor does it set up
machinery for assessment, collection and enforcement of
liability to pay tax, charged upon inter-State sales of
dealers. By S. 8(2) tax payable by the dealer in respect of
his sales not falling within sub-s. (1)-and the turnover in
the present case is not in respect of sales falling within
sub-s. (1)-has to be calculated at the same rates and in the
same manner as would have been calculated, if the sale had
taken place inside the appropriate State. The clause in
terms only deals with calculation of the tax-the rate at
which and the manner in which the tax has to be calculated-
under the State law : it does not attract any exemptions
from tax prescribed by the State law.
Use of the expression "in the same manner" in S. 8 (2) has
not the effect of assimilating the procedural and the
substantive provisions relating to the imposition, levy and
collection of tax as are provided by the State law in the
matter of collection of tax under the Central Sales Tax Act.
The Legislature has not said so in express terms, and there
is no implication to that effect in the scheme of the Act.
Section 9(1) invests the appropriate State Government with
authority to levy and collect tax, in the manner provided by
sub-s. (2). By sub-s. (2) of S. 9 the Legislature has
expressly provided that the tax has to be assessed,
collected and
136
payment has to be enforced under the general sales tax law
of the appropriate State on behalf of the Government of
India. The scheme devised by the Legislature is fairly
clear. Section 6 charges inter-State transactions to tax.
The function of S. 8(2) is to prescribe the rate and the
manner of calculation of tax : it is not intended to
incorporate the entire procedural and substantive State law
relating to tax. By sub-s. (2) of S. 9 the machinery for
assessment, collection and enforcement of liability to pay
tax is set up. Neither S. 8 (2) nor S. 9 (2) cuts down the
plenary charge imposed by s. 6. It is true that s. 9(1)
directs that the tax payable by IL dealer shall be levied
and collected, in the manner provided in that sub-section.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8
The sub-section, however, does not charge turnover to tax :
the turnover stands already charged by S. 6. Again the
inter-relation of the two sub-sections of S. 9 clearly
establishes that the machinery of assessment, collection and
enforcement of liability prescribed by the State statute
alone is incorporated in the Central Sales Tax Act. I am,
therefore, unable to hold that under sub-sections (1) and
(2) of s. 9, the power conferred upon the authority
competent to assess the tax in the same manner as the tax on
the sale or purchase of goods under the general sales tax
law includes the power to admit to exemptions provided by
the State law, inter-State sales-taxable under the Central
Sales Tax Act.
This view has been taken in several cases which have come
before the Madras. Kerala and Andhra Pradesh High Courts,
in S. Mariappa Nadar and others v. The State of Madras(1) it
was held by the Madras High Court that tax leviable under s.
8(2) was on the turnover under the Central Sales Tax Act,
and not under the Madras General Sales Tax Act. There was,
in the view of the Court, nothing in S. 8(2) which provided
that the interState nature of the transaction was taken away
and the transaction became intra-State. The Act did not
declare that the transaction shall be deemed to be one
inside the State. The local sales tax law applied to it
only to the extent to which it was specifically directed.
Therefore by the terms of S. 8 the assessee was not entitled
to exclude from the turnover the inter-State sales. The
Court also held that the phrase "in the same manner" in S.
9(3) which was substituted for the original sub-s. (2) of S.
9, by the Central Sales Tax (Second Amendment) Act, 19581
did not make applicable all the incidents of the local sales
tax law to the assessment under the Central Sales Tax Act.
The phrase merely contemplated that the procedure of making
an assessment, collection
(1)[1962] 13 S.T.C. 371.
137
of tax, and the provisions relating to the determination of
turnover shall be the same as laid down in the local Sales
Tax Act.
In M. Abbas and Company v. The State of Madras(1) it was
held by the Madras High Court that for the purpose of
attaching liability to sales tax under S. 8 (2) the fact
that in respect of that transaction the dealer may not be
liable under the local sales tax law (goods sold being
subject only to a single point levy under the local sales
tax law) is of no consequence.
The principle of Mariappa’s case(2) was applied by the
Kerala High Court in Parvathi Mills (Private) Ltd v. The
State of Kerala(8), in which excise duty paid to the Central
Government by a dealer and collected from his customers was
not permitted to be excluded from the turnover by the
application of rule 7(1) of the General Sales Tax Rules,
1950, framed under the local Sales Tax Act. It was observed
in that case that the expression "in the same manner" in S.
9(2) of the Central Sales Tax Act did not attract the
application of the rule which justified the exemption.
The Andhra Pradesh High Court in Sri Surya Trading Firm and
others v. The State of Andhra Pradesh ( 4 ) held that an
assessee dealing in handloom cloth and whose inter-State
sales fell under s. 8(2) of the Central Sales Tax Act, 1956,
was not entitled to the benefit of the exemption granted to
handloom cloth under the notification issued by the State
Government on December 13, 1957, in exercise of the powers
conferred under S. 9(1) of the Andhra Pradesh General Sales
Tax Act, 1957. The fiction created by s. 8 (2) of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8
Central Sales Tax Act, 1956, was only for the limited
purpose of calculating the rate, and the position of a
dealer under S. 8 (2) could not be equated with that of a
dealer governed by the Andhra Pradesh General Sales Tax Act,
1957, for every purpose.
In The State of Mysore and another v. Mysore Paper Mills
Ltd(5) the Mysore High Court also approved of the principle
of Mariappa’s case(2) and Parvathi Mills’ case(3) and held
that by the use of the expression "in the same manner" in S.
9 (3) which was substituted for the original s. 9 (2) by the
Central Sales Tax (Second Amendment) Act, 19581 all the
incidents of the local sales tax law to the assessment under
the Central Sales Tax Act are not applied: what is
contemplated by that phrase is that the procedure of making
an assessment and collection of tax is the same as in the
local Sales Tax Act.
(1) (1962) 13 S.T.C. 433.
(2) (1962) 13 S.T.C. 371.
(3) (1962) 13 S.T.C. 927.
(4) (5964) 1 5 S.T.C. 176.
(5) (1964) 15 S.T.C. 176.
Sup./65-10
138
In my view these cases correctly interpret the words of s. 8
(2) and S. 9 (2) of the Central Sales Tax Act as they stood
before, its amendment in the year 1958. These cases, it is
true, did not expressly deal with the interpretation of S.
9(1) of the Central Sales Tax Act, but in my judgment, for
reasons already stated, the machinery incorporated by sub-
ss. (1) & (2) of s. 9 of the Central Sales Tax Act from the
State statute only relates to assessment, collection and
enforcement of liability to tax.
In my view the High Court was in error in regarding sales
other than the first sales exempt from liability to pay tax
under the Central Sales Tax Act when the sales sought to be
taxed were in the course of inter-State trade or commerce.
ORDER
In accordance with the Opinion of the majority this Appeal
is dismissed with costs.
139