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AMICUS AI
Citation Codes
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citation codes
Case Number
Attorney(S)
  • For the Respondent: The Advocate General for The Asst, Govt. Pleader.
Judges
  • Rajamannar, C.J
  • Rajagopalan
  • Rajagopala Ayyangar, JJ.
Acts
  • provisions of the Madras General Sales-tax Act and the Rules
  • provisions of the Madras General Sales-tax Act
  • sub-rule (ii) reproduces-and re-enacts R. 4(2)(d).
  • Rules, Rule 4 of these Rules provides,4(1)
  • Section 2(b) of the General Sales Tax Act,
  • Madras General Sales Tax Act is S. 3(1)
  • Rule 15(1) enacts that Rules 6 to 13
  • English Partnership Act of 1890
  • Madras General Sales-tax Rules
  • GOVERNMENT OF INDIA ACT 1935
  • Madras General Sales Tax Act
  • provisions of this Act, S. 3
  • made.10. Rules 15 and 16
  • General Sales-tax Rules
  • sub-rules.25. Rule 16(2)
  • Indian Partnership Act
  • dealers.33. Rule 15(1)
  • rules. Section 5(vi)
  • skins.9. Rule 5
  • Sales Tax Act
  • sub-rule (2)
  • Sub-rule (1)
  • Rule 4(2)(c)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • For the Respondent: The Advocate General for The Asst, Govt. Pleader.
Judges
  • Rajamannar, C.J
  • Rajagopalan
  • Rajagopala Ayyangar, JJ.
Acts
  • provisions of the Madras General Sales-tax Act and the Rules
  • provisions of the Madras General Sales-tax Act
  • sub-rule (ii) reproduces-and re-enacts R. 4(2)(d).
  • Rules, Rule 4 of these Rules provides,4(1)
  • Section 2(b) of the General Sales Tax Act,
  • Madras General Sales Tax Act is S. 3(1)
  • Rule 15(1) enacts that Rules 6 to 13
  • English Partnership Act of 1890
  • Madras General Sales-tax Rules
  • GOVERNMENT OF INDIA ACT 1935
  • Madras General Sales Tax Act
  • provisions of this Act, S. 3
  • made.10. Rules 15 and 16
  • General Sales-tax Rules
  • sub-rules.25. Rule 16(2)
  • Indian Partnership Act
  • dealers.33. Rule 15(1)
  • rules. Section 5(vi)
  • skins.9. Rule 5
  • Sales Tax Act
  • sub-rule (2)
  • Sub-rule (1)
  • Rule 4(2)(c)
See more information ...
Smart Summary

Structured Summary of the Opinion (Rajagopala Ayyangar, J.)

Factual and Procedural Background

The Full Bench was asked to decide the following question of law referred to it: “Whether a licensed tanner who purchases untanned hides and skins from an unlicensed dealer is liable to be taxed on his turnover under R. 16(2) or under any other provisions of the Madras General Sales-tax Act and the Rules framed thereunder?”

The referred question arose from an assessment and subsequent revision proceedings involving a licensed firm of dealer-cum-tanners (C. Hajee Abdul Sukoor & Co.) relating to the year 1950–1951. The assessing authority determined a large net turnover. The firm appealed to the Commercial Tax Officer and then to the Sales Tax Appellate Tribunal. The Tribunal accepted some factual contentions (e.g., that certain Secunderabad purchases were effected outside the State) but included purchases from Bangalore and Bombay in the assessee's turnover. The assessee challenged inclusion of purchases from unlicensed dealers, and because of conflicting observations in earlier decisions, the matter was referred to a Full Bench for determination of the legal question described above.

Legal Issues Presented

  1. Whether a licensed tanner who purchases untanned hides and skins from an unlicensed dealer may be taxed on his purchase turnover under Rule 16(2) of the Turnover and Assessment Rules (or under any other provisions of the Madras General Sales-tax Act and the Rules) — i.e., whether such purchases can be included in the licensed tanner's assessable turnover.
  2. Whether Rule 4(2) of the Turnover and Assessment Rules operates to fix the "single point" of taxation for hides and skins within the meaning of Section 5(vi) of the Madras General Sales-tax Act, or whether the single point is fixed only by Rule 16.

Arguments of the Parties

Advocate General (for the State) — Principal Contentions

  • Section 3(1) imposes a tax on every dealer's total turnover; the rules determine whether the buyer or the seller is taxed for each sale so that a tax on purchase turnover is legally permissible under the statutory scheme.
  • Although hides and skins are to be taxed at a single point under Section 5(vi), the rules have power to fix that single point and to determine whether buyer or seller is taxable; Rule 4(2) performs those functions for certain commodities, including untanned hides and skins.
  • Rule 4(2)(c) specifies that the gross turnover in respect of untanned hides and skins "bought by a licensed tanner in the State" is the amount for which they are bought by him; this should be read to mean purchases by a tanner for the purpose of tanning who actually tans them (i.e., not merely occupationally licensed), and it makes no distinction as to whether the seller is licensed or unlicensed.
  • Rule 16(2) should be read as reproducing and re-enacting Rule 4(2)(c)/(d): the negative formulation of R.16(2) simply displaces the general sale-based charge in R.4(1) and the subsequent paragraphs (i) and (ii) of R.16(2) correspond to R.4(2)(c) and (d) respectively; hence purchases by tanners from unlicensed dealers fall within the purchase-turnover tax.
  • Forms and returns (Forms A-4 and A-5) and the structure of the rules support treating a tanner's purchase turnover as taxable even if purchases were from unlicensed dealers.

Counsel for the Assessee (Mr. K.V. Venkatasubramania Aiyar) — Principal Contentions

  • Although S.3(1) is the charging provision, it becomes operative only when rules prescribe whether the buyer or seller is to be taxed; separately, S.5(vi) requires that a single point in the series of sales of hides and skins be prescribed by rules — a scheme that must apply to all transactions in hides and skins.
  • Rule 4's purpose is limited to determining, for certain transactions, whether tax is to be computed on the buyer’s turnover or the seller’s turnover (the first proviso to S.3(5)); R.4(2) should not be read as fixing the single point of taxation under S.5(vi).
  • It would be unreasonable to construe R.4(2)(c)/(d) as establishing the universal single point for all hides and skins transactions while leaving many other transactions governed by R.4(1) (which would defeat the single-point requirement of S.5(vi)).
  • Rules 15 and 16 show the legislature's and rule-makers' intention that the single point for hides and skins is fixed by Rule 16 and that the special scheme in Rules 15–16 applies to licensed dealers; thus purchases from unlicensed dealers should not be included in a licensed tanner's purchase turnover under R.16.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
AIR 1953 Mad 105 Discussion of scheme of taxation under the rules for untanned hides and skins; held R.16(5) to be ultra vires of the rule-making power as contravening S.5(vi). The Court noted that the earlier decision treated R.16(5) as ultra vires and that the Supreme Court affirmed that finding. The Full Bench considered the earlier Court's analysis of the scheme but observed that the particular point now referred (taxation of purchases from unlicensed dealers by licensed tanners) was not directly decided in that case and that some observations were obiter.
AIR 1955 Mad 239 Addressed whether a tanner could be taxed on purchase price only if (a) purchase was from a licensed dealer and (b) purchase was for tanning by him; considered the possibility of successive tanners being taxed and the need to interpret the rule to avoid multi-point taxation. The Full Bench treated the views expressed in this judgment as indicating the point was prima facie tenable in favour of the assessee. It observed that the 1955 decision remitted a case to permit the assessee to prove purchases were from unlicensed dealers and did not finally decide the present legal question.
Bhagwanji Moiarji Goculdas v. Alembic Chemical Works Co. Ltd., AIR 1948 PC 100 (D) Passage cited on the Indian Partnership Act recognizing that a firm may possess a personality distinct from persons constituting it (comparative comment on partnership law). The Court cited the passage in discussing whether transfers by a partner to the firm constitute a "sale"; however, it relied ultimately on the explicit explanatory provision in Section 2(b) of the General Sales Tax Act for the conclusion that such transfers are sales within the Act.
Rustomji v. Sheth Purshotamdas, 25 Bom 606 Authority relied on by the assessee concerning contractual relations where an individual is in two capacities (cited in argument about partner dealing with firm). The Court noted the decision was relied upon but held the actual question in this matter did not turn on that authority; instead it relied on the statutory explanation to S.2(b) of the General Sales Tax Act to treat transactions between a partner and his firm as sales.

Court's Reasoning and Analysis

The Court proceeded by closely analyzing the statutory charging provision and the relevant rules:

  1. Statutory framework: Section 3(1) imposes a tax on every dealer's total turnover subject to exceptions and subject to rules that determine turnover and whether the buyer or seller is taxable. Section 5(vi) creates a special regime for hides and skins requiring taxation "only at such single point" in the series of sales as may be prescribed by rules.
  2. Role of rules: Rules made under the Act determine who (buyer or seller) is taxed in a transaction (S.3(5) proviso) and must prescribe the single point for commodities covered by S.5(vi). Two sets of rules are relevant: the Turnover and Assessment Rules (e.g., Rule 4) and the Madras General Sales-tax Rules (licensing and procedural rules, e.g., Rule 5).
  3. Content of Rule 4 and Rule 16: Rule 4(1) states gross turnover is the amount for which goods are sold. Rule 4(2) lists certain goods for which gross turnover is the amount for which goods are bought, including "untanned hides and skins bought by a licenced tanner in the State." Rule 15(1) limits the application of Rules 6–13 and provides that Rules 15 and 16 apply to licensed tanners and dealers in hides and skins. Rule 16(1) states tax on hides and skins shall be levied in accordance with Rule 16; Rule 16(2) provides that no tax shall be levied on sale of untanned hides or skins by a licensed dealer except at the stage where such hides or skins are sold to a tanner in the State or are sold for export, and paras (i) and (ii) specify taxation from the tanner (on purchase price) or the last taxable dealer who bought them for export.
  4. Interpretive dispute: The State argued Rule 4(2)(c) fixed the single point and made no reference to seller's licensing status, so purchases by a licensed tanner from unlicensed dealers are taxable on purchase turnover. The assessee argued that R.4(2) merely determines whether the buyer or seller is to be taxed for particular transactions (first proviso of S.3(5)) and cannot be read to fix the universal single point required by S.5(vi); the single point is fixed only by Rule 16 which, read with Rule 15, applies to dealings by licensed dealers.
  5. Contextual and textual construction: The Court emphasized that R.3 opens with "subject to the provisions of this Act" and S.5(vi) therefore shapes the operation of S.3 as to hides and skins. The Court gave weight to Rule 15(1) which expressly provides that the provisions of Rule 16 apply to dealings in hides and skins by "licensed" tanners and dealers. Reading R.16(2) in context, the Court concluded that its opening paragraph negatives general liability for sales by licensed dealers (as contemplated by R.4(1)) and then creates two exceptions (sales to a tanner in the State and sales for export). Because Rule 16 deals with sales by licensed dealers, the references in R.16(2) to "sold to a tanner" and "sold for export" must be read as sales by licensed dealers.
  6. Distinction between R.4(2) and R.16(2): The Court held that R.4(2) is not the mechanism by which the single point is fixed under S.5(vi) — rather R.4(2) is a rule determining whether turnover is to be computed on purchase or sale for certain listed commodities. The single point of taxation for hides and skins is fixed by Rule 16, which is designed to implement the S.5(vi) single-point requirement and to apply to licensed dealers (per Rule 15).
  7. Application to the referral question: From this construction the Court concluded that under R.16(2)(i) tax arises only where there is a sale of untanned hides and skins by a licensed dealer to a licensed tanner who tans the goods, i.e., the taxable purchase-turnover of a licensed tanner includes only purchases from licensed dealers. Purchases by licensed tanners from unlicensed dealers are not included within R.16(2)'s taxing provision.
  8. Consideration of earlier decisions: The Court examined the two earlier decisions referred to in the order. It treated aspects of AIR 1953 Mad 105 as obiter on the precise present point and noted AIR 1953 had held R.16(5) ultra vires (a conclusion affirmed by the Supreme Court). The 1955 Mad decision was read as regarding the question as prima facie tenable in favour of the assessee but did not finally decide it; the Full Bench accepted the tenor of those observations but based its conclusion on the proper construction of R.16(2), not on the invalidity of R.16(5).

Holding and Implications

Holding: The Full Bench answered the reference in favour of the assessee. The Court's core ruling was: In computing the purchase turnover of a licensed tanner, only sales to him from licensed dealers can be included; purchases from unlicensed dealers are not taxable under Rule 16(2).

Implications:

  • Direct effect on the parties in the present revision: The Full Bench's conclusion meant that the purchases from Bangalore and Bombay (which the Tribunal had included in the assessee's taxable turnover and which were purchases from unlicensed dealers) could not be included. The Tribunal's inclusion of those purchases in the assessee's turnover was set aside; the revision was allowed.
  • The Court recorded ancillary practical orders in the revision: the assessee succeeds on the question referred; because the assessee failed on other grounds raised before the Court, there would be no order as to costs; and the earlier assessment is to be adjusted consistent with the ruling.
  • Scope of precedent: The Court grounded its conclusion on a construction of Rule 16(2) (and its relationship with Rule 15 and the statutory provisions). The Court expressly stated that this result follows from the proper construction of R.16(2), not from the invalidity of R.16(5) (the latter related to unlicensed dealers and was a different issue). The opinion did not claim to create a wider novel principle beyond the construction announced; it answered the referred question and resolved the parties' dispute accordingly.

Disposition

The revision was allowed; the Tribunal's order including the Bangalore and Bombay purchases in the assessee's turnover was set aside. There was no order as to costs in the revision case.

If Information Was Not Included in the Opinion

All material summarized above was taken from the provided opinion. No external facts or case law beyond what the opinion itself cites have been added.

Show full summary ...

    Hajee Abdul Shukoor And Co. v. State Of Madras .

    Rajagopala Ayyangar, J.:— The quesestion of law which has been referred to the Full Bench is

    “Whether a licensed tanner who purchases untanned hides and skins from an unlicensed dealer is liable to be taxed on his turnover under R. 16(2) or under any other provisions of the Madras General Sales-tax Act and the Rules framed thereunder?” The circumstances leading to this reference have been set out in the order of reference and need not be repeated.

    2. It will be convenient to refer to the relevant provisions of the Madras General Sales-tax Act and the Rules framed thereunder and examine the question in the light of these provisions before dealing with the observations in the two decisions adverted to in the order of reference. Section 3 of the Act is what might be termed the principal charging provision. The relevant portion of this section is in these terms:

    “3(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

    (3) A dealer whose total turnover in any year is less than ten thousand rupees shall not be liable to pay any tax for that year under sub-s. (1) or sub-s. (2).

    (4) For the purposes of this section and the other provisions of this Act, turnover shall be determined in accordance with such rules as may be prescribed:

    Provided that no such rules shall come into force unless they are approved by a resolution of the Legislative Assembly.

    (5) The taxes under sub-ss. (1) and (2) shall be assessed, levied and collected in such manner and in such instalments, if any, as may be prescribed:

    Provided that

    (i) in respect of the same transaction of sale, the buyer or the seller, but not both, as determined by such rules as may be prescribed, shall be taxed;

    (ii) where a dealer has been taxed in respect of the purchase of any goods in accordance, with the rules referred to in cl. (i) of this proviso, he shall not be taxed again in respect of any sale of such goods effected by him.”

    3. “Dealer” is defined in S. 2(b) as any person who carries on the business of buying or selling goods.

    4. Though S. 3(1) levies a tax on the sale of goods on every dealer on his total turnover — subject to exceptions which are not relevant — in the case of hides and skins this provision is subject to the terms of S. 5 enacting single point taxation. Section 5 reads:

    “5. Subject to such restrictions and conditions as may be prescribed including conditions as to licences and licence fees

    (i) the sale of handspun yam and of any cloth woven on handlooms wholly with handspun yarn and sold by persons dealing exclusively in such cloth, shall be exempt from taxation under S. 3, sub-s. (1);

    (ii) the sale of cotton (including kapas) and of cotton yam other than handspun yarn shall be liable to tax under S. 3, sub-s. (1), only at such single point in the series of sales by successive dealers as may be prescribed and only at the rate of one half of one per cent, of the turnover at that point;

    (iii) the sale of any cloth woven on handlooms wholly or partly with mill yarn shall be exempt from taxation under S. 3, sub-s. (1), if the sale is to a wholesale or retail dealer in the State, or if the sale is for delivery outside the State and delivery is actually so made;

    (iv) the sale of bullion and specie shall be liable to tax under S. 3, sub-s. (1), only at such single point in the series of sales by successive dealers as may be prescribed and only at the rate of one-fourth of one per cent, of the turnover at that point;

    (v) the sale of tea grown by the seller or grown on any land in which he has an interest, whether as owner, usufructuaiy mortgagee, tenant, or otherwise, shall be exempt from taxation under S. 3, sub-s. (1), if the sale is for delivery outside the State and delivery is actually so made;

    (vi) the sale of hides and skins, whether tanned or untanned…. shall be liable to tax under S. 3, sub-s. (1) only at such single point in the series of sales by successive dealers as may be prescribed.”

    5. As S. 3(1) itself opens with the words “subject to the provisions of this Act”, S. 3 would be subject to the provisions of, among others, S. 5(vi). It will be noticed that sub-ss. (4) and (5) of S. 3 and S. 5 refer to “prescription” and under S. 2(f) “prescribed” means prescribed by rules made under the Act.

    6. In accordance with these provisions, rules have been made providing ‘inter aha’ whether the buyer or the seller has to be taxed in respect of a transaction of sale under proviso (1) to S. 3(5) for the determination of the turnover of a dealer under S. 3(4), and also generally for the assessment, levy and collection of the tax under S. 3(5) as also in regard to restrictions and conditions including conditions as to licence and licence fees refereed to in the opening words of S. 5.

    7. The rules are in two sets. The first is Madras General Sales-tax (Turnover and Assessment) Rules dealing with the determination of the turnover, the “prescribing” of the person whose turnover is liable to be taxed, fixation of the points at which the transaction is liable to taxation in respect of those commodities for which a single point taxation, is provided for in the Act as also for the levy and collection of the tax.

    8. The other set of rules entitled the Madras General Sales-tax Rules lays down the procedure for application for licences under the Act, the authority to grant them, the conditions subject to which they are granted, the fees prescribed therefor, the accounts to be maintained by assessees, the hierarchy of officials and authorities who are to carry out the assessment or hear appeals or deal with revisions therefrom and such other procedural matters. In the present case we are concerned with the Turnover and Assessment Rules, Rule 4 of these Rules provides,

    “4(1) Save as provided in sub-rule (2) the gross turnover of a dealer for the purposes of these Rules shall be the amount for which goods are sold by the dealer;

    (2). In the case of the undermentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer.

    (a) groundnut,

    (b) Cashew, cotton (including kapas) bought by spinning the mill or by dealer who exports outside the State,

    (c) untanned hides and skins bought by a licenced tanner in the State, and

    (d) untanned hides and skins exported outside the State by a licenced dealer in hides and skins.”

    9. Rule 5 sets out how the net assessable turnover is derived, and Rules 6 and 13 lay down the procedure by which the assessing authority determines the turnover and levies the tax. Rule 14 enjoins upon the assessing authority the necessity to record its reasons in writing in cases where it determines the turnover on a figure different from that shown in a return submitted under the provisions of the rules, with a proviso that the same, shall not affect the validity of assessments duly made.

    10. Rules 15 and 16 are the special rules designed to apply to the assessment and levy of the tax payable on hides and skins. Rule 15(1) enacts that Rules 6 to 13 shall not apply to licensed tanners and other licensed dealers in hides and skins in respect of their dealings in hides and skins but that the provisions of that and the following rule shall apply to them in respect of such dealings.

    11. The other sub-clauses of R. 15 are not very relevant in the present context as they relate to the provisional assessments their collection and the final adjustments in the light of the turnover for the year when finally ascertained. Rule 16 is the crucial rule which determines the points at which the tax on hides and skins is levied. It is necessary, therefore, to set out this rule in full:

    “16(1). In the case of hides and skins the tax payable under S. 3(1) shall be levied in accordance with the provisions of this rule.

    (2). No tax shall be levied on the sale of untanned hides or skins by a licensed dealer in hides or skins except at the stage at which such hides or skins are sold to a tanner in the State or are sold for export outside the State.

    (i) In the case of all untanned hides or skins sold to a tanner in the State, the tax shall be levied from the tanner on the amount for which the hides or skins are bought by him.

    (ii) In the case of all untanned hides or skins which are not sold to a tanner in the State but are exported outside the State, the tax shall be levied from the dealer who was the last dealer not exempt from taxation under S. 3(3) who buys them in the State on the amount for which they were bought by him.

    (3). Sales by licensed dealers of hides or skins which have been tanned within the State shall be exempt from taxation provided that the hides or skins have been tanned in a tannery which has paid the tax leviable under the Act. If such hides or skins have been tanned in a tannery which is exempt from taxation under S. 3(3); the sale of such hides or skins shall be liable to taxation as under the next sub-rule below dealing with hides or skins tanned outside the State.

    (4) Sales by licensed dealers in hides or skins which have been tanned outside the State shall be exempt from taxation except at the stage of sale by the dealer, who is the first dealer not exempt from taxation under S. 3(3) who sells them within the State. The tax shall be levied from such dealer on the amount for which he sells such hides or skins.

    (5) Sale of hides or skins by dealers other than licensed dealers in hides or skins shall, subject to the provisions of S. 3, be liable to taxation on each occasion of sale.”

    12. Before considering the exact terms of this rule, it is necessary to set out the terms of R. 5 of the General Sales-tax Rules under which dealers have to obtain licence, for the purpose of their dealings. This Rule runs thus:

    “5(1) Every person who

    (a) deals in cotton and/or cotton yarn other than handspun yarn and/or handspun yarn, or

    (b) deals exclusively in cloth woven on handlooms wholly with handspun yarn, or

    (c) deals in cloth woven on handlooms wholly or partly with mill yarn, or

    (d) deals in bullion and/or specie, or

    (e) deals in hides and/or skins whether as a tanner or otherwise, or

    (f) for an agreed commission or brokerage, buys and/or sells goods of any description on behalf of known principals, shall, if he desires to avail himself of the exemption provided in Ss. 5 and 8 or of the concession of taxation only at a single point or of taxation at the rate specified in S. 5, submit an application in Form I for a licence in respect of each of his places of business to the authority specified in sub-rule (2) so as to reach him not later than the 30th day of April of the year for which the licence is applied for:

    Provided that in the case of a business which is commenced in the course of a financial, year, the dealer shall submit the application for the licence to such authority so as to reach him not later than thirty days' from the date of commencement of business.

    Provided further that, where the exemption or concession aforesaid was conferred for the first time by the Madras General Sales-tax (Amendment) Art. 1947, and the dealer had commenced business before 1-1-1948, he shall submit the application for the licence not later than 1-3-1948.”

    13. It will be seen that the licensing provisions are not compulsory and the basis upon which they are worked is that if a dealer desires to avail himself of the exemption provided under Ss. 5 and 8 or the concession of taxation only at a single point, he has to obtain a licence. In other words the penalty for not taking out a licence is the deprivation of the concessions named in sub-cls. 5(1)(f).

    14. We are not now called upon to consider the exact scope of the concessions as laid down under this provision for the very good reason that the case involved in present reference relates to a licensed tanner and his liability to taxation under R. 16 of the Turnover and Assessment Rules.

    15. It will now be convenient to consider the terms of R. 16 under which, in the case of hides and skins the single point in the series of sales by successive dealers has been prescribed. Sub-rule (1) laying down that “in the case of hides and skins the tax payable under S. 3(1) shall be levied in accordance with the provisions of this rule” makes it clear that so far as hides and skins are concerned, the levy of the tax under the charging provision, S. 3(1), is to be determined only in accordance with the provisions of R. 16.

    16. This really carries out the provisions of R. 15(1) under which in relation to licensed tanner and other licensed dealers in hides and skins in respect of their dealings in hides and skins, the provisions of R. 16 shall apply. This reference is concerned with the proper interpretation, of R. 16(2) which runs:

    “No tax shall be levied on the sale of untanned hides or skins by a licenced dealer in hides or skins except at the stage at which such hides or skins are sold to a tanner in the State or are sold for export outside the State.

    (i) In the case of all untanned hides or skins sold to a tanner in the State, the tax shall be levied from the tanner on the amount for which the hides or skins are bought by him.

    (ii) In the case of all untanned hides or skins which are not sold to a tanner in this State but are exported outside the State, the tax shall be levied from the dealer who was the last dealer not exempt from taxation under S. 3(3) who buys them in the State on the amount for which they were bought by him.”

    17. We shall now set out the respective arguments submitted on behalf of the assesses and by the learned Advocate General on behalf of the State as to the proper scope and effect of this sub-rule. The construction which the learned Advocate General invited us to adopt was this. Under Section 3(1) of the Act a liability is imposed on even/dealer to a tax on his total turnover subject only to the condition that in respect of each transaction of sale, the rules would determine whether it is the buyer or the seller that would be liable but not both. This multipoint levy is not however applicable to sales of hides and skins but they are to be taxed only at a single point fixed by the rules. Section 5(vi) postulates a series of sales each of which might be taxable, the rule making authority being given the power to fix a single point in such series of sales at which the tax is to be levied. If, therefore, the rules fixed a single point at which the sale is to be taxed and if they determined whether it was the seller or the buyer that should pay the tax, the charging provision immediately comes into operation, the charge gets levied and the tax becomes exigible. Rule 4 of the Turnover and Assessment Rules satisfies all the requirements of Law to bring the charge into operation. Subrule (2) sepcifies a few commodities in respect of which the tax is payable on the purchase turnover, that is, it is payable by the buyer and among these, hides and skins are included. The prescription, therefore, enjoined by S. 8(5) proviso (I) is made. Sub-clauses (c) and (d) perform a double function. They fix the single point for taxation as required by S. 5(vi) and in addition they also specify as required by S. 3(5) as to whether it is the buyer or the seller that should be taxed in respect of a sale in that commodity. Rule 4(2)(c) provides that in respect of untanned hides and skins bought by a licenced tanner in the State, the gross turnover of the dealer is the amount for which the goods are bought by him. There is no doubt that in the present case, it is a licensed tanner who had bought the goods. The expression “bought by a licensed tanner” in the context and in the light of the other provisions of the rules should be understood to mean “bought by a tanner” for the purpose of tanning and is actually tanned by him, that is, the licensed tanner is referred to not in an occupational sense merely. The forms prescribed under the rules for the returns to be submitted by the dealers in hides and skins effectuate this purpose and enable the tax to be levied on the purchase turnover of hides which are really consumed in a tannery or which are exported outside the State as untanned hides and skins in respect of which also the tax is laid down by the sub-rule. The forms referred to are forms A-4 and A-5 and under these the tanner-dealer returns his purchase turnover but this is deducted from the assessable turnover when the goods are sold to another dealer within the State without being tanned by the tanner purchaser. The argument is that it is immaterial for the purpose of R. 4(2)(c) as to the person from whom the licenced tanner purchases and that a liability to pay the tax arises on his purchase and it does not matter whether the person from whom he buys is a licensed or an unlicensed dealer. This last argument is put forward in order to sustain the plea that R. 4(2)(c) and (d) also serve to fix the single point for the purpose of taxation under Section 5(vi) of the Act. It is urged that if R. 4(2)(c) and (d) were understood in this sense, there would automatically be only the single point, for there cannot be a series of purchases by tanners for tanning for when the process of tanning is completed, the goods will cease to be untanned skins and hides and in regard to sub-rule (d) there cannot be any further sales in the State if the goods have been exported. The further argument is that all dealings in hides and skins not falling within R. 4(2)(c) and (d) are comprehended within R. 4(1) under which the tax is levied on the seller on his sale turnover. This contention about the scope and effect of R. 4(2) is sought to be reinforced by a reference to the language and form in which the tax liability is dealt with by R. 16. The provision in R. 18(2), it will be noticed, is in the negative and forbids the levy of a tax ora the sale of untanned hides and skins ‘except’ at the stage at which such hides and skins are sold to a tanner or sold for export. It is argued that this negative form was adopted because such sales would have fallen under R. 4(1) and would have been liable to a tax on their sale turnover. It is urged that after this general declaration which, so to speak, gets rid of the absolute liability imposed by R. 4(1), the two paras 16(2) numbered (i) and (ii) deal with the exact class of cases which are dealt with by R. 4(2)(c) and (d). In other words R. 16(2)(i) merely reproduces and re-enacts R. 4(2)(c) and should not consequently be understood as varying the category of transactions which the language of R. 4(2)(c) is apt to include within its signification. The words therefore in R. 16(2) “in the case of all untanned hides or skins sold to a tanner” should be read as-meaning untanned skins and hides purchased by a tanner from any person whatsoever and the tax is to be levied to the tanner on the amount for which the hides or skins are bought by him.

    18. Similarly, it is said, sub-rule (ii) reproduces-and re-enacts R. 4(2)(d). On this basis the argument is that there is no specification either in. R. 4(2)(c) or R. 16(2)(ii) that the purchase by the tanner should have been from a licensed dealer so that every purchase from whatever source would have to be included in his turnover.

    19. On the other hand the contention of Mr. K.V Venkatasubramania Aiyar the learned counsel for the assessee is that the charging provision under the Madras General Sales Tax Act is S. 3(1) but that it becomes operative on the rule prescribing whether it is the buyer or the seller on whose turnover the tax is to be levied in respect of particular commodity.

    20. In addition to this general rule, the levy of tax on hides and skins is subject to a further condition that the rules must prescribe one single point in the series of sales at which the tax is-to be levied. The content and scope of rule 4 is merely to prescribe under proviso (1) to S. 3(5) namely the determination as to whether it is the buyer or the seller that should be taxed and R. 4(2)(e) cannot be read as the fixation of a single point for taxation within the meaning of Section 5(vi) of the Act.

    21. He points out that S. 5(vi) requires that in the case of all transactions in hides and skins, the single point for taxation has to be fixed and that even accepting the argument of the learned Advocate General, a large number of transactions in hides and skins fall within R. 4(1) under which admittedly there is no fixation of a single point. It is, therefore, unreasonable and not proper to-assume that in respect only of particular specified transactions, R. 4(2)(c) and (d) operate not merely as prescriptions under the first proviso to S. 3(5) but also fix the single point for taxation under S. 5(vi).

    22. The other rules in the Turnover and Assessment Rules particularly Rules 15 and 16 make it absolutely clear that R. 4 is not designed or apt to fix the single point for taxation. But on the other hand it is really one which merely determines whether in respect of particular transactions in any commodity, it is the buyers' or the sellers' turnover that is liable for taxation.

    23. Having considered the matter carefully we are clearly of opinion that the contention raised in behalf of the assessee ought to prevail. In the case of hides and skins no turnover is liable to tax until the single point in the series of sales is fixed by the rules and the turnover represents the total of the transactions in the year. Rule 15 is very clear that the turnover in respect of dealings in hides and skins has to be ascertained and assessed under R. 16. Rule 15, it will be noticed, specifically prescribes that the provisions of that rule apply to the dealings by “licensed” tanners and dealers.

    24. Therefore in the absence of any specific indication to the contrary, the dealings referred to in II. 16 would be held to mean only dealings by licensed dealers. It is in that context that the terms of R. 16 have to be understood. Rule 16(1) is a further declaration which emphasises that in respect of dealings in hides and skins the determination of the taxable turnover would be governed by the other sub-rules.

    25. Rule 16(2) enacts a general rule that in respect of dealings in hides and skins, there shall be no taxation at successive points but only at two mutually exclusive points, thus conforming to the requirements of the prescription called for by S. 5(vi). The two mutually exclusive points are set out in sub-cls. (i) and (ii) which follow the main portion of the sub-rule. The first relates to a tanner which in the context undoubtedly means and can only mean a tanner who has actually tanned those goods. Sub-clause (ii) deals with goods exported outside the State.

    26. It will be seen that in both these cases this will be the last sale of goods within the State as untanned hides and skins for in the first case, after tanning it will become tanned hides and skins, a matter which is dealt with by R. 16(3) and in the case covered by sub-cl. (ii) the untanned hides and skins would have left the State. Therefore, there could be no further sales of the commodity within the State.

    27. The terms of R. 15 as well as those of R. 16(2) make it clear that it is a dealing by a licensed dealer that is being dealt with under these rules. The argument or the Advocate General is that paragraphs (i) and (ii) of R. 16(2) have to be divorced from the opening portion of R. 16(2) which refers to dealings of licensed dealers and should be read as re-enacting the provisions of R. 4(2)(c) which do not specifically refer to the dealer who sells to the tanner as being licensed.

    28. An analysis of R. 16(2) clearly establishes the untemability of the argument on behalf of the State. The opening paragraph consists of two parts. The first is couched in the negative and reads like an exemption of the levy of tax on the sales of untanned hides and skins by licensed dealers thus carrying out the object of R. 15(1) under which this rule has to provide for dealings in hides and skins by licensed dealers.

    29. To this extent it negatives any liability that might arise on sales of hides and skins which might have attached to such sales by reason of the language of R. 4(1). The second limb of the sub-rule enacts two exceptions and provides for taxability in these two cases the two types of transactions are indicated as the stages at which the tax would be levied. The first is when such goods are sold to a tanner in the State and the second is when they are sold for export outside the State.

    30. Having regard to the form of this rule which deals with sales and not with purchases, the rule has to be read as a sale by a licensed dealer to a tanner in the State. Though the sub-rule if read ‘in vacuo’ might mean “whether the sale is effected to a licensed or an unlicensed tanner”, yet read in conjunction with R. 15(1) there can be no doubt that the tanner who is referred to in the second limb of the opening paragraph of R. 16(2) is a licensed tanner and this construction would be in accord with the form of R. 4(2)(c) also. In the same manner the sale for export which is referred to in the last portion of this paragraph would necessarily mean a sale by a licensed dealer.

    31. It will be seen that the two paragraphs numbered (i) and (ii) that follow the opening paragraph of R. 16(2) really deal with the two exceptions which have been indicated by the second limb. Read in the light of this context there can be no room for doubt that the dealings of the tanner which are liable to tax under (i) are sales by licensed dealers which words are to be found in the opening portion of R. 16(2). The expression “sold to a tanner” in S. 16(2)(i) is a repetition of what is contained in the opening paragraph of R. 16(2) and a continuation of the same idea.

    32. On the other hand the form of expression used in R. 4(2)(c) is entirely distinct. The pattern of R. 16(2)(ii) is exactly identical and does not need separate consideration. We are, therefore, unable to accept the argument of the learned Advocate General that R. 16(2)(i) should be read as identical with R. 4(2)(c) and that the purchase turnover of a licensed tanner would include purchases from unlicensed dealers.

    33. Rule 15(1) specially declares that the provisions of that and the following rule shall apply to dealings in hides and skins by licensed dealers alone, and this has been consistently carried out by R. 16(2), (3) and (4). This scheme is emphasised by the provisions made by R. 16(5) under which in the case of unlicensed dealers, the rule of single point taxation gives place to multi point tax.

    34. It may be mentioned that this Court has held in AIR 1953 Mad 105 at p. 115(B) R. 16(5) to be ‘ultra vires’ of the rule making power as contravening the provisions of Section 5(vi) of the Act and the decision of this Court has been affirmed by the Supreme Court on appeal. What the effect of this is upon the liability of on unlicensed dealer to taxation does not arise for consideration in the present case because the assessee whose case is referred is a licensed dealer. But in considering the scheme of taxation enacted by R. 16, we cannot ignore the existence of sub-r. S.

    35. The conclusion we have reached as a result of the above discussion is that (1) the charging provision, S. 3 is subject to the case of transactions in hides and skins, to the terms of S. 5(vi) under which a single point of taxation in a series of sales has to be fixed by the rules; (2) R. 4(2) is not the fixation of a single point within S. 5(vi) but is merely designed to determine whether it is the buyer or the seller that shall be liable to be taxed;. (3) the single point is fixed and the liability to tax is established only under R. 16; and (4) that under R. 16(2)(i) it is only the sale: of untanned hides and skins by a licensed dealer to a licensed tanner who tans the same that gives: rise to a tax liability and that purchases of untanned hides and skins by tanners from persons other than licensed dealers are not within the taxing provision.

    36. We might now refer to the two decisions which are mentioned in the order of reference. The first of them is a decision of this Court in AIR 1953 Mad 105 at p. 115 (B) and the passage relevant to the present context is at page 115. It runs thus:

    “To appreciate the true position it is necessary to examine the scheme of taxation which has been adopted in the rules with reference to untanned hides and skins’…………in broad outline, the scheme of taxation adopted by the rules is to levy the tax at the stage when the articles are tanned in the State or exported to foreign countries for tanning. Thus, under R. 4(2)(c) when a licensed tanner purchases untanned hides and skins for tanning, the amount for which he purchases the goods is to be included in his turnover and he is taxed thereon, and under R. 4(2)(d) when a licensed dealer purchases untanned hides and skins for export, the amount for which he purchases would be included in his turnover and he would be taxed thereon.

    Then comes R. 16 which has come in for considerable criticism. Rule 16(2) fixes in accordance with R. 4 the points of taxation at the stage of tanning or at the stage of export. But then, it limits the operation of this rule of sales by licenced dealers. It is his limitation that furnishes the ground for attack on the rules. To understand the objection it will be useful to analyse the possible cases which might arise on the application of R. 16(2).

    Taking first the case of hides and skins which are tanned within the State, four possible situations might arise. There might be a sale by a licensed dealer either to a licensed tanner or to an unlicensed tanner; or there might be a sale by an unlicensed dealer either to licensed tanner or to an unlicensed tanner. When the sale is by a licenced dealer, R. 16(2)(i) provides for a tax being levied an the tanner whether he is licenced or unlicenced. But where the sale is by an unlicensed dealer, there is a difference in the incidence of taxation. If the sale is to a licensed tanner, then under R. 4(2)(c), the purchaser has to pay the tax.

    But where the sale is to an unlicensed tanner R. 4(1) will apply and the tax will fall on the seller. Rue 16(5) provides that sale by dealers other than licenced dealer will be ‘liable to taxation on each occasion of sale’. Under this sub-clause when there are successive sales by unlicensed dealers the tax will be leviable on each occasion of sale and that will be inconsistent with S. 5(vi) which provides for taxation at a single point.”

    37. On the facts of the case before this Court, it is clear that the question as to the liability to taxation by licensed tanners of goods purchased from unlicensed dealers did not arise for consideration at all. The case was one which related to a licensed tanner who had also purchased from licensed dealer & the point raised for consideration of the Court was the constitutional validity of the provisions of R. 4 under which the tax was leviable on a purchaser in certain cases.

    38. The contention raised was that as the Government of India Act, 1935, under which the Madras General Sales Tax Act was enacted enabled the levy of a tax on sales of goods, the power did not comprehend legislation by which tax was imposed on a buyer. There were other certain subsidiary points arising under Art. 14 of the Constitution of India and also an attack upon Rules 15 and 16 of the Act.

    39. But the point in the present form was never before the Court and these observations arose merely incidentally in discussing the scheme of taxation and are wholly in the nature of an obiter, the Court's attention not having been directed to the particular point which has now arisen for discussion.

    40. In the light of the elaborate argument which has been addressed to us upon the relative scope of R. 4(2) and Rr. 15 and 16 we are unable to agree that the single point for taxation is fixed under R. 4(2)(c) or that sub-rule by itself imposes a liability to tax divorced from the conditions laid down in R. 16 of the Turnover and Assessment Rules.

    41. The other decision is the one reported in AIR 1955 Mad 239 (A). The point was stated by Satyanarayana Rao, J. in these terms:

    “The short point, that has been raised by the learned Counsel for the assessees, is that under R. 16 a tanner may be taxed on the purchase price fuly if his purchase was from a licensed dealer of untanned hides and skins, and if ins purchase was only for the purpose of tanning by him. Until these two conditions were satisfied, the levy of the tax by the department could not be justified.

    As regards the second of the two conditions, it is stated, that the language of the rule “sold to the tanner” and the language of the return form A-4 prescribed by the rules in which the assessee is required to state the amount for which hides and skins were purchased for tanning by the assessee as well as the exemption under sub-cl. (3) of S. 16 undoubtedly support the contention of the learned counsel for the assessee, for otherwise there is the possibility of successive tanners being taxed under this rule.

    If the tanner purchases from a licensed dealer and then sells it without tanning to another tanner, who is also a licensed tanner and so on, all these tanners could be taxed under this rule and unless a limit of the nature suggested, namely, that the purchase must be for tanning by the tanner himself is imposed, the multi-point tax cannot be avoided………As regards the other contention, that the purchase must be from a licensed dealer with reference to the turnover in dispute, the assessee did not no doubt make any attempt either before the Department or before the Appellate Tribunal to raise the question and substantiate the point by placing material before any of them.

    This was explained by the assessee as due to the fact, that until the law was settled by the Supreme Court and also by this Court that R. 16(5) was ‘ultra vires’, it was assumed that even purchases from unlicensed dealers by a tanner could be made liable and that, therefore, there was the omission to draw the distinction between purchase from a licensed dealer and purchase from an unlicensed dealer. Having regard to the fact, that there was some confusion in the mind of the assessee, and also the Department till the law settled recently, we think there is justification for the contention of the assessee, that this omission was not wilful but was due to this circumstance.”

    42. In the light of these observations the learned Judge remitted the case to the Tribunal for disposal after the assessee was given an opportunity to prove his contention that his purchases were from an unlicensed dealer. We do not read this judgment as deciding the point now under reference. The utmost that could be said is that it considered the point now raised in favour of the assessee under reference as prima facie tenable. As would be seen from our discussion of the point referred we are in agreement with the view which the learned Judges in this case were inclined to accept.

    43. The only reservation which we desire to make is that, the conclusion does not really flow by reason of the invalidity of R. 16(5) but because of the proper construction of R. 16(2) for R. 16(5) has to do with the taxation of unlicensed dealers whereas the question now under issue is the transactions of licensed dealers though their purchases are from unlicensed dealers. Rule 16(5) could have no bearing either as imposing or exempting any tax liability in such a case.

    44. Our answer to the question referred to us therefore is that in computing the purchase turnover of a licensed tanner only the sales to him from licensed dealers could be included.

    (This petition coming on for final orders before Rajagopalan and Rajagopala Aiyangar, JJ. on 18th April, 1955, the Court delivered the following order:)

    Rajagopala Aiyangar, J.:— This is a revision filed by the assessees against the order of the Sales Tax Appellate Tribunal. The assessees are a registered firm carrying on business as dealers in rules and skins with a tannery at Red Hills and office at 31 Angappa Naicken Street, Madras. They hold a licence in respect of their dealings in hides & skins as dealer-cum-tanners. The assessment now in question relates to the year 1950–1951. The firm consists of two partners Hajee Abdul Sukkoor and Hajee Muhammad Ibrahim and carries on business in the name and style of C. Hajee Abdul Sukoor and Co. The Deputy Commercial Tax Officer, Harbour Division, whp is the assessing authority, determined the net turnover of the assessee at Rs. 19,82,235-14-5.

    45. The assessees filed an appeal to the Commercial Tax Officer and there raised a contention that as the bulk of the goods tanned by them were sold for export they were entitled to exemption under Art. 286(1)(b) of the Constitution. They further urged that barring the purchase of a total value of Rs. 8,65,210-2-6 which represented local purchases the rest of the goods were purchased outside the State and therefore not liable to be included in their turnover. These purchases fell under three categories: (1) purchases through their agents at Secunderabad totalling Rs. 95,630-13-6; (2) purchases from merchants in Bombay aggregating to Rs. 2,72,205-8-3 and (3) purchases from Bangalore totalling Rs. 7,49,179-6-2. The Commercial Tax Officer rejected the contention put forword on behalf of the assessees that none of these categories of purchases were effected outside the Madras State and dismissed their appeal. The matter was then taken up to the Sales Tax Appellate Tribunal by a further appeal by the assessees. Before the Tribunal besides the point urged before the lower authorities, certain additional points which we shall deal with presently were also raised. The Tribunal accepted the contention of the assessees that the purchases from Secunderabad had been effected outside the State and that therefore they could not be included in the turnover of the assessees but after excluding this item held the assessees liable to pay the tax on the turnover of (1) local purchases regarding which no controversy was raised and (2) purchases from Bangalore and purchases from Bombay.

    46. In regard to the Bangalore purchases, the points raised were these: These purchases were effected by the partner Hajee Muhammad Ibrahim who was a resident of Bangalore and who besides being a partner of the assessee-firm was also independently carrying on a business at Bangalore in hides and skins. Two alternative contentions were raised as regards these purchases. The first was that the purchase by the partner Ibrahim was a purchase on behalf of the assessee-firm. If the assessees had been able to establish this, undoubtedly they could have proved that the purchase had been effected outside the State and the purchase price could not have, been included in their turnover.

    47. The Tribunal however found that the goods were purchased not by the assessee-firm but by Ibrahim himself and that Ibrahim had subsequently effected a sale of the goods to the assessee-firm, the latter sale having been effected and completed within the State. On this finding of fact there can be no basis for the contention that the sale was outside the State and as a result learned counsel for the assessees has not repeated this argument before us.

    48. The other was a legal contention accepting the finding that the purchase from the Bangalore merchants was made by Ibrahim individually but that as Ibrahim was a partner in the assessee-firm there-could not legally be a sale by him to the assessee-firm because a person cannot contract with himself and another. The Tribunal rejected this argument and in our opinion, rightly. For supporting this point learned counsel for the assessees relied on the decision in — ‘Rustomji v. Sheth Purshotamdas’, 25 Bom 606 (C).

    49. The actual question which arose for decision does not bear on the point we have to consider. This was whether where an individual was a common partner in two firms, any suit could be brought, by one firm against the other on any transaction between them, a procedural problem which has been solved by the enactment of O. 30, R. 9 of the CPC (vide also O. 48-A, R. 8 S.C)

    50. In the absence of any legislative guidance, we would have had to consider the very interesting, question as to how far the mercantile concept of a firm being invested with juristic personality effected by the combined operation of the terms of the-Partnership Act and O. 30 of the CPC, has rendered a partner sufficiently distinct from the firm of which he is a member as to render it possible for contracts being concluded between them. In this connection reference may be made to a passage in the judgment of Sir John Beaumont in — ‘Bhagwanji Moiarji Goculdas v. Alembic Chemical Works Co. Ltd., AIR 1948 PC 100 (D) where he said:

    “The Indian Partnership Act goes further than the English Partnership Act of 1890 in recognising that a firm may possess a personality distinct from the persons constituting it; the law in India in that respect being more in accordance with the law of Scotland than with that of England.”

    51. We are however relieved of this necessity by reason of the explanation to Section 2(b) of the General Sales Tax Act, which runs:

    “A co-operative Society, a club, a firm, or any association which sells goods to its members is a dealer within the meaning of this clause.”

    52. It follows that a transfer of the property in goods by a member of a firm to the firm is a sale within the meaning of the General Sales Tax Act.

    53. In the case of purchases from Bombay the assessees made an attempt before the Tribunal to prove that the sale transactions were completed outside the State but the Tribunal held against them on the facts and so the point is no longer open to the assessees in tills Court.

    54. In regard to both the Bombay and Bangalore purchases a further point was raised before the Tribunal that even assuming that the purchases took place within this State they were purchases from unlicensed dealers, and that on a proper construction of the Sales Tax Act and the rules framed thereunder, particularly Rules 15 and 16 of the Turnover and Assessment Rules, these purchases could not be included in their taxable turnover. This contention which was negatived by the Tribunal was raised before us, and having regard to the importance of the point and certain conflicting observations in decisions of this Court, it was referred by us to a Full Bench.

    55. The Full Bench has now answered the reference in favour of the assessees. The result is that these purchases both from Bangalore and Bombay which are purchases from unlicensed dealers are not liable to be included in the taxable turnover of the assessees.

    56. We might mention in passing that though the partner Ibrahim was the seller in Bangalore, as he was not individually licensed under the Madras General Sales Tax Act, the purchase from him by the assessee firm should be treated as a purchase from an unlicensed dealer.

    57. The result is that the assessees are entitled to succeed and the order of the Tribunal including the Bangalore and Bombay purchases in the Turnover of the assessees is set aside.

    58. In view however of the assessees having failed in the other contentions raised by them before us, we direct that there should be no order as to costs in this revision case.

    H.G.P

    59. Revision allowed.

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    Hajee Abdul Shukoor And Co. v. State Of Madras .
    (Mar 14, 1955)