1. Dispute over whether a dealer purchasing ground-nuts from an agriculturist is liable for sales tax and entitled to collect such tax from the agriculturist. (Para 1 , 2 , 3 )
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1958 Supreme(SC) 44
SUPREME COURT OF INDIA
3rd April, 1958
S.R. DAS, C.J.I., T.L. VENKATARAMA AYYAR, S.K. DAS, A.K. SARKAR AND VIVIAN BOSE, JJ.
Konduri Buchirajalingam, Appellant
Versus
The State of Hyderabad and others, Respondents.
Civil Appeal No. 192 of 1955.
Advocates appeared
Mr. T. V. R. Tatachari, Advocate, for Appellant; Mr. C. K. Daphtary, Solicitor-General of India (M/s. R. Ganapathi Iyer and T. M. Sen, Advocates, with him), for Respondents.
Advocates:
C.K.DAFTARY, R.Ganapathy Iyer, T.M.SEN, T.V.R.TATACHARI
C.K.DAFTARY, R.Ganapathy Iyer, T.M.SEN, T.V.R.TATACHARI
A dealer is liable for sales tax on purchases from non-dealers if rules specify the buyer pays. A general regulatory declaration of "essential commodities" does not satisfy the specific constitutional requirement of being "essential for the life of the community" to restrict state taxation under Article 286(3).
Headnote:(A) General Sales Tax Act - Sections 3, 4, 5, and 11 - Rule 5(2) and Rule 10 - Constitution of India - Article 286(3) - Essential Supplies (Temporary Powers) Act, 1946 - Liability of a dealer to pay tax on purchases from an agriculturist - Whether a dealer can collect tax from an agriculturist - Nature of sales tax as an indirect tax - Interpretation of "essential commodity" for the purpose of Article 286(3) of the Constitution - A dealer purchasing ground-nuts from an agriculturist is liable to pay tax on the purchase as per the rules, provided the dealer is the taxable entity - No right exists to collect tax from an agriculturist who is not a dealer and thus has no liability under the Act (Paras 7, 8).
(B) Sales tax is not necessarily an indirect tax; primary liability can be imposed on a person without providing a legal power to recoup the amount from another party (Para 9).
(C) A declaration of goods as "essential commodities" under a general regulatory act for the purpose of controlling supply and distribution does not constitute a declaration that such goods are "essential for the life of the community" within the meaning of Article 286(3) of the Constitution, which requires a specific Parliamentary declaration for the purpose of restricting state taxation (Para 10).
Facts of the case:
A dealer in ground-nuts was required to pay sales tax on purchases made from agriculturists. The dealer sought to collect this tax from the agriculturists but was prohibited by tax authorities. The dealer challenged the tax demands, arguing that purchases from agriculturists were exempt, that he had a right to recoup the tax, and that ground-nuts were essential commodities under the Constitution, making the state tax invalid without presidential assent.
Findings of Court:
The court held that under the relevant rules, the buyer (if a dealer) is liable for tax on ground-nuts. Since agriculturists are not dealers, they have no liability, and thus the dealer cannot collect tax from them. Furthermore, the regulatory declaration of ground-nuts as essential commodities did not meet the specific constitutional requirement of being "essential for the life of the community" to block state taxation.
Issues: Whether a dealer is liable for tax on purchases from an agriculturist; whether such tax can be collected from the agriculturist; whether sales tax must be an indirect tax; and whether a general regulatory act declaring goods essential triggers the presidential assent requirement under Article 286(3) of the Constitution.
Ratio Decidendi: The court reasoned that tax is leviable on turnover, and where rules specify the buyer pays, the dealer-buyer is liable regardless of the seller's status. A right to collect tax under the Act only exists if the other party is liable to pay it. Regarding the Constitution, Article 286(3) requires a specific Parliamentary law declaring goods essential for the life of the community to restrict state legislative power, which a general supply-control act does not satisfy.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether purchases from agriculturists are taxable, if dealers can collect tax from non-dealer sellers, and if ground-nuts qualify as essential commodities under Article 286(3). (Para 4 , 5 , 6 , 8 , 9 , 10 )
3. Tax on ground-nuts is leviable on the buyer if they are a dealer; agriculturists, not being dealers, have no tax liability or turnover. (Para 5 , 6 , 7 , 8 , 9 , 10 )
4. Sales tax may be levied on the buyer alone; a dealer cannot collect tax from a non-dealer seller who has no liability under the Act. (Para 7 , 8 )
6. Is a dealer liable to pay sales tax on ground-nuts purchased from an agriculturist?
Yes. Under the Act and Rule 5(2), the turnover for ground-nuts is the amount for which they were bought by the dealer. While the agriculturist, not being a dealer, is not liable, the dealer as the buyer is liable for the tax. (Para 7 )
7. Can a registered dealer collect sales tax from an agriculturist seller?
No. Section 11 allows the collection of tax payable under the Act. Since an agriculturist is not a dealer and has no tax liability or turnover, no tax is payable by them, and the dealer has no right to collect it from them. (Para 8 )
8. Must a sales tax necessarily be an indirect tax allowing the primary liable party to recoup the amount?
No. A sales tax does not need to be an indirect tax; the primary liability for the tax can be placed upon a person without giving them any legal power to recoup the amount from any other party. (Para 9 )
9. Does a declaration of goods as essential under the Essential Supplies (Temporary Powers) Act, 1946, exempt them from state sales tax under Article 286(3)?
No. Article 286(3) requires a law made by Parliament declaring goods essential for the life of the community. The 1946 Act declared goods essential for its own regulatory purposes and not specifically for the purposes of Article 286(3). (Para 10 )
Judgment
A. K. SARKAR J. (on behalf of S. R. Das CJI., Venkatarama Aiyar, S. K. Das JJ. and himself). This appeal raises a question under the Hyderabad General Sales Tax Act, 1950. It is from a judgment of a Full Bench of the High Court at Hyderabad, dated 11th September 1953, which, by a majority, dismissed a petition by the appellant asking for the issue of certain writs.
2. In Warangal in Hyderabad State there was an Association of oil mill owners called the Warangal Subha Oil Mill Owners Association. The appellant was a member and the Vice-President of that Association. The members of the Association in the course of their business purchased ground-nuts for the purpose of converting them into oil and trading in the same.
3. The Hyderabad General Sales Tax Act came into force on 1st May 1950. The members of the Association who were "dealers" as defined in the Act, got themselves registered under its provisions. Soon after the Act came into force the Sales Tax Officer, Warangal verbally informed the members of the Association that they would have to pay tax on the purchase of ground-nuts made by them. Thereafter certain correspondence ensued between the Association and the taxing authorities in which the Association took up the position that the members should collect tax that they were called upon to pay, from the persons from whom they bought the ground-nuts including the actual growers thereof whom we shall hereafter refer to as the agriculturists. The Association requested the Market Superintendent at Warangal to assist its members in collecting the tax from the agriculturists according to the practice prevailing in Hyderabad. The Market Superintendent informed the Association that the members should not collect any tax from the agriculturists. The Association carried on further correspondence with the higher Sales Tax Authorities insisting that its members should be allowed to collect from the agriculturists the tax on the purchases made from them and requested that the collection of tax from the members should be suspended till a decision of the question of their right to collect the tax from the agriculturists, was arrived at. On 23rd December 1950, the Commissioner of Sales Tax, Hyderabad, wrote to the Association stating that a dealer had no right to collect the tax from an agriculturist and that the sale of agricultural produce by an agriculturist did not attract the liability to tax under the Act, and therefore the members of the Association could not collect any tax from the agriculturists and that the sale of agricultural produce by an agriculturist did not attract the liability to tax under the Act, and therefore the members of the Association could not collect any tax from the agriculturists. He added that under R. 5 (2) of the Rules framed under the Act, the turnover on which the tax was payable in respect of sales of ground-nuts was the amount for which the goods were bought and therefore the sellers of ground-nuts were not liable to pay any tax. He also intimate that a dealer in ground-nuts was at liberty to collect the tax paid by him on his purchases of ground-nuts, from the person to whom he subsequently sold the ground-nuts and in the cases in which he converted the ground-nuts into oil, he was entitled to include the tax in the price of the oil sold by him. The Association then addressed the Finance Minister of the Government of Hyderabad on the same question, on 9th January 1951. Before a reply was received from the Finance Minister the members of the Association were pressed by the local Tax Authorities to submit their returns and this they thereupon did, claiming in such returns a deduction of tax on ground-nuts purchased by them from the agriculturists. Assessments were duly made on these returns but the deductions claimed were not allowed. Demands for payment of tax were thereafter made on the members of the Association in terms of the orders of assessment. The assesses preferred appeals from the or
