1. Sales tax dispute — inclusion of tax collected from consumers in taxable turnover — levy of additional tax on specific goods under Madras General Sales Tax Act. (Para 1 , 2 , 3 , 4 , 5 )
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1961 Supreme(SC) 377
SUPREME COURT OF INDIA
27th November, 1961
B.P. SINHA, C.J.I., J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH, AND J.R. MUDHOLKAR, JJ.
1. M/s. George Oakes (Private) Ltd. (In C. As. Nos. 1 to 3 of 61) 2. M/s. Addison and Co. (Private) Ltd. (In C. A. No. 4 of 61) and 3. M/s. Rane (Madras) Ltd. (In C. A. No. 5 of 61), Appellants
Versus
State of Madras (In all the Appeals), Respondent.
Civil Appeals Nos. 1 to 5 of 1961.
Advocates appeared
Mr. R. Ganapathy Iyer, Advocate and M/s. G. Gopalakrishnan and V. J. Merchant, Advocates of M/s. Gagrat and Co., for Appellants (In all the Appeals); M/s. S. Venkatakrishnan and P. D. Menon, Advocates, for Respondent.
Important Points
Turnover for sales tax purposes includes the tax collected from consumers, as it constitutes part of the dealer's circulating capital. Consequently, additional taxes on specific goods are leviable on the total amount received, including the tax components.
Subject
Tax Law - Sales Tax
Act Referred
MADRAS GENERAL SALES DEFINITION OF TURNOVER AND VALIDATION OF ASSESSMENTS ACT: S.2
MADRAS GENERAL SALES TAX ACT: S.2(i), S.3
MADRAS GENERAL SALES TAX ACT: S.2(i), S.3
Headnote
(A) General Sales Tax Act, 1939 - Sections 3(1) and 3(2) - General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 - Section 2 - Definition of turnover - Inclusion of tax collected from consumers in turnover - Levy of additional tax on special goods - Whether the additional tax is leviable on the amount of tax included in the turnover relating to special goods - Turnover includes the total amount of money turned over in the business, including taxes collected, as it forms part of the circulating capital of the dealer - For goods subject to additional tax, the turnover "relating to such goods" includes the tax collected, and thus the additional tax is leviable on the consolidated amount. (Paras 6, 7)
(B) Tax on Tax - Inclusion of tax in turnover does not constitute an illegal tax on tax, as the price paid by the purchaser is a composite sum and the tax becomes part of the dealer's circulating capital. (Para 6)
Facts of the case:
Dealers in motor vehicles and spare parts challenged the inclusion of sales tax collected from consumers within the "turnover" for the purpose of calculating an additional tax. While a general tax was applicable to all goods, a higher additional tax was levied on specific categories of goods. The dispute centered on whether the additional tax should be applied to the portion of the turnover that consisted of the tax already collected.
Findings of Court:
The court held that the additional tax is leviable on the turnover relating to specific goods, and this turnover includes the total amount received by the dealer, including the taxes charged.
Issues: Whether the additional tax can be included in the turnover relating to special goods and the resultant sum taxed at the additional rate.
Ratio Decidendi: The term "turnover" refers to the total amount of money turned over in the business. Since the dealer retains the collected tax as circulating capital before remitting it to the government, it forms part of the turnover. For goods subject to an additional tax, the turnover "relating to such goods" encompasses the total amount received, including both the general and additional taxes.
Result: Appeals dismissed.
(B) Tax on Tax - Inclusion of tax in turnover does not constitute an illegal tax on tax, as the price paid by the purchaser is a composite sum and the tax becomes part of the dealer's circulating capital. (Para 6)
Facts of the case:
Dealers in motor vehicles and spare parts challenged the inclusion of sales tax collected from consumers within the "turnover" for the purpose of calculating an additional tax. While a general tax was applicable to all goods, a higher additional tax was levied on specific categories of goods. The dispute centered on whether the additional tax should be applied to the portion of the turnover that consisted of the tax already collected.
Findings of Court:
The court held that the additional tax is leviable on the turnover relating to specific goods, and this turnover includes the total amount received by the dealer, including the taxes charged.
Issues: Whether the additional tax can be included in the turnover relating to special goods and the resultant sum taxed at the additional rate.
Ratio Decidendi: The term "turnover" refers to the total amount of money turned over in the business. Since the dealer retains the collected tax as circulating capital before remitting it to the government, it forms part of the turnover. For goods subject to an additional tax, the turnover "relating to such goods" encompasses the total amount received, including both the general and additional taxes.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether additional tax is leviable on the consolidated turnover including tax collected, or whether such tax should only be taxed at the minimum rate. (Para 4 , 6 )
3. Turnover includes tax collected as it constitutes circulating capital for the dealer and the price paid by the purchaser is a composite sum. (Para 6 , 7 )
4. Turnover relating to special goods includes all taxes chargeable on those goods, making the additional tax leviable on the total amount received by the tradesman. (Para 7 )
5. Appeals dismissed; the order of the Deputy Commercial Tax Officer restoring the levy of additional tax on the consolidated turnover is upheld. (Para 8 , 9 )
6. Does the turnover for sales tax purposes include the tax collected by the dealer from the consumer?
Yes. The tax collected is treated as part of the turnover because the dealer retains it as circulating capital before paying the government, and the purchaser pays a composite sum. (Para 6 )
7. How is the additional tax calculated for specific classes of goods under the Madras General Sales Tax Act?
The additional tax is levied on the turnover relating to those specific goods, which includes the general tax and the additional tax itself, calculated on the total amount received. (Para 7 )
8. Can the additional tax be levied on the portion of the turnover that consists of the tax already charged?
Yes. The court held that the additional tax is leviable on the consolidated amount, including the tax chargeable, for goods specifically subject to that additional levy. (Para 7 , 8 )
Judgment
HIDAYATULLAH, J. : These five appeals on certificates granted by the High Court of Madras were consolidated and heard together. They arise out of proceedings against the appellants under the Madras General Sales Tax Act, 1939. The appellants are three Companies carrying on business of sale of motor cars, motor car spare parts, and other goods. Messrs. George Oakes (Private) Ltd., have filed Civil Appeals Nos. 1 to 3 of 1961 questioning a part of the sales tax imposed on them for the years, 1950-51, 1951-52 and 1952-53. Civil Appeals Nos. 4 and 5 of 1961 have been filed respectively by Messrs. Addison & Co. (Private) Ltd., an Messrs. Rane (Madras) Ltd., questioning similarly a part of the tax imposed on them for the year ending March 31, 1952. The common question which has been raised by the appellants arises in the following circumstances.
2. Under the Madras General Sales Tax Act, 1939, "turnover" is defined inter alia as-
"the aggregate amount for which goods are either bought by or sold by a dealer whether for cash or for deferred payment or other valuable consideration . ... . .. ." Sales tax is levied on the dealers on their total turnover for each year of account at the rate of 3 pies for every rupee of turnover. This is laid down by S. 3(l)(a) and (b) of the Act. Under the second sub-section of S. 3, an additional tax of 6 pies for every rupee is leviable on the turnover relating to certain classes of goods. The section (omitting unnecessary portion) may be quoted here for further reference:
"3. Levy of taxes on sales of goods.-
1. Subject to the provisions of this Act
(a) every dealer shall pay for each year a tax on his total turnover for such year and
(b) the tax shall be calculated at the rate of three pies for every rupee in such turnover.
2. Subject as aforesaid, the sale of any of the goods mentioned below shall be subject to a tax at the rate specified in respect thereof, at such single point in the series of sales by successive dealers as may be prescribed; and the tax shall be paid by the dealer concerned on his turnover in each year relating to such goods, and shall be in addition to the tax to which he is liable under sub-section (1) on his total turnover for the year:-
Description of the goods Rate of tax for every rupee in the turnover relating to such goods.
(1) Motor vehicles including motor cars, motor taxi-cabs, motor cycles and cycle combinations, motor scooters, motorettes, motor chassis of motor vehicles. Six pies"
3. In Deputy Commissioner of Commercial Taxes v. M. Krishnaswami Mudaliar & Sons, 1954-5 STC 88: , the Madras High Court held that amounts collected by a registered dealer from consumers by way of sales tax and paid over to the Government could not be included in the turnover of the registered dealer as part of the sale price of goods sold by him, and were not liable to be taxed again. The Madras Legislature then passed the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (Act 17 of 1954). Section 2 of that Act provided that:
"In the case of sales made by a dealer before the 1st April, 1954, amounts collected by him by way of tax under the Madras General Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the principal Act), shall be deemed to have formed part of his turnover."
4. The business of the three appellants included sales of goods described in the second sub-section of S.3 of the Madras General Sales Tax Act as well as sales covered by the first sub-section. The Deputy Commercial Tax Officer included in the total turnover the tax chargeable, and then levied the tax on the turnover relating to goods liable to the additional tax, at the rate of 9 pies, and on the remaining turnover, at 3 pies for every rupee. The inclusion of the tax in the total turnover was objected to by these tradesmen. They appealed to the Special Commercial Tax Officer, but were unsuccessful. The Sales Tax Appellate Tribunal on further appeal, he
