Standard Match Industries v. State Of Tamil Nadu

Jayasimha Babu, J.:— The common question raised in these two cases is as to whether the payments alleged to have been voluntarily made by customers for specific charity form part of consideration for the sale of the goods for the purpose of levy of tax under the Central Sales Tax Act.

2. The relief claimed in these two cases is for the exclusion of a sum of Rs. 1,25,011. from the turnover of M/s. Standard Match Industries for the assessment year 1979-80 (CST) and for setting aside the levy of a sum of Rs. 2,500.22 as tax thereon, and for the exclusion of a sum of Rs. 53,179.59 from the turnover of Standard Match Industries (E) Unit for the assessment year 1979-80 (CST) and setting aside the levy of Rs. 1,064.00 as tax on that sum. The assessee claimed that these amounts had been collected as Y.R.T.V Mahimai at 15 paise per bundle of matches sold, and the amounts so collected from the customers had been collected for and on behalf of Yennarkey R. Ravindran, Tilagavathy Vidhyasala, a charitable institution running a school. It is also the case of the assessee that the amounts collected were not taken as trading receipts or profits, and that they were credited to a separate account and payments made therefrom to the charities periodically.

3. The assessing officer, viz., Deputy Commercial Tax Officer, Sivakasi. Town, rejected the petitioner's claim for excluding the same from the assessee's taxable turnover. On appeal, the Appellate Assistant Commissioner (C.T) allowed the appeal and excluded the sums placing reliance on the judgment of the Supreme Court in the case of Commissioner of Income-tax (Central), New Delhi v. Bijli Cotton Mills (P.) Ltd., [1979] 116 ITR 60; (1979) 1 SCC 496 : AIR 1979 SC 346.

4. The Commissioner of Commercial Taxes, has revised the order of the Appellate Assistant Commissioner by way of suo motu revision. The Commissioner has held that these amounts were demanded and collected by the assessee from their purchaser on the occasion of their sales and then shown separately in sale bills. These amounts therefore form part of consideration for the sale of goods and form part of the sale price and, of turnover as they are defined in section 2(h) and 2(j) of the Central Sales Tax Act. The Commissioner placed reliance for his finding,-on the decision of this Court in the case of Pandaria Pillai v. State of Madras, [1973] 31 STC 108 wherein it was held that the amounts collected as “mahimai” from the purchasers at the time of sale shown separately in sale bills would form part of the taxable turnover, under section 2(r) of the Tamil Nadu General Sales Tax Act. This decision has been referred to by the apex Court in its decision reported in [1979] 116 ITR 60; (1979) 1 SCC 496 : AIR 1979 SC 346 [Commissioner of Income-tax (Central), New Delhi v. Bijli Cotton Mills (P.) Ltd.] but it has not been overruled.

5. Learned counsel for the assessee contended that though the decision of this Court has not been expressly overruled by the apex Court, nevertheless having regard to the ratio laid down by the apex Court in the case of Bijli Cotton Mills, [1979] 116 ITR 60; (1979) 1 SCC 496 : AIR 1979 SC 346, it must be held that the decision of this Court in Pandaria Pillai v. State of Madras, [1973] 31 STC 108 has been impliedly overruled. The further submission of counsel was that the definition of “turnover” in the Central Sales Tax Act is different from the definition found in the Tamil Nadu General Sales Tax Act and therefore the earlier decision of this Court in Pandaria Pillai v. State of Madras, [1973] 31 STC 108 is not applicable to the facts of this case in the light of the law laid down by the apex Court.

6. In the case of Commissioner of Income-tax (Central), New Delhi v. Bijli Cotton Mills (P) Ltd., [1979] 116 ITR 60; (1979) 1 SCC 496 : AIR 1979 SC 346 the apex Court considered the claim of the assessee for exemption under section 4(3)(i) of the Income-tax Act, 1922. The assessee's contention was that the amounts realised from customers who had paid the additional amounts could not be regarded as income of the assessee, and therefore, could not be subject to levy of income-tax. As observed by court at para 6 of the judgment, the question, which arose, for consideration in those appeals were as to (1) what is the true nature or character of these receipts, whether they constitute a part of the price received by the assessee effecting sales of yam or cotton and are, therefore, trading receipts of the assessee and (2) whether these realisations were property held under trust or other legal obligation for charitable purposes.

7. The court held that gift to “dharmada” was not void for vagueness and that right from inception the amounts received from the assessee for “dharmada” were received and held by the assessee under an obligation to spend the same for charitable purposes only, with the result, that these receipts cannot be regarded as forming a part of any income of the assessee.

8. Regarding the compulsory nature of levy, the court held that notwithstanding that compulsory nature, the amounts received for “dharmada” could not be regarded as part of the price or a surcharge on price of goods purchased by the customers.

9. The court held that “the amount of ‘dharmada’ is undoubtedly a payment which a customer is required to pay in addition to the price of the goods which he purchases from the assessee, but the purchase of the goods by the customer would be the occasion and not the consideration for the ‘dharmada’ amount taken from the customer”. The court observed that it is true that without payment of ‘dharmada’ amount the customer may not be able to purchase the goods from the assessee but that would not make the payment of “dharmada” amount involuntary inasmuch as it is out of his own volition that he purchases yarn and cotton from the assessee and the “dharmada” amount is, therefore, clearly not a part of the price but a payment for the specific purpose of being spent on charitable purposes. After recording holding this, the apex Court referred to the decision of this Court in the case of Pandaria Pillai, [1973] 31 STC 108 as also the decision of the High Court of Andhra Pradesh in the case of Poosarla Samba-murthi, [1956] 7 STC 652, and observed that these two decisions:

“………………are clearly distinguishable and inapplicable to the facts of this case inasmuch as both the decisions were rendered under sales tax legislation where the question that was required to be considered was whether the realisations for ‘dharmam’ (charitable purpose) in the former case or mahimai (religious purpose) in the latter case, would fall within the definition of ‘turnover’ as contained in the concerned legislation, and it was held that such realisations were includible in the assessee's turnover. We do not wish to express any opinion on the correctness of these decisions. Suffice it to state that the ratio of these decisions cannot apply to the instant case. Since the realisations in question in the present case are not a part of the price or surcharge on the price but payments for the specific purpose of being spent on charitable purposes, they cannot be regarded as trading receipts of the assessee.”

10. The apex Court thus made a distinction between the computation of turnover for the purpose of Sales Tax Act, and the determination of income for the purpose of Income-tax Act and held that the amounts received as contributions to “dharmada” could not be regarded as income which income-tax could be levied.

11. This Court in the case of Pandaria Pillai, [1973] 31 STC 108 after noticing judgments of the apex Court, as also the Court of Appeal in the UK, which had laid down that even the amount collected as sales tax, if not separately shown would form part of the consideration, and part of the turnover as the dealer had not been constituted as the collecting agent for collecting sales tax dues on the sale of the goods, held that the assessee in that case who had added half a per cent of the actual sale price in his invoice and collected the same from the purchasers, who were under no legal obligation to pay the same, should be treated as part of the consideration for which the goods have been sold by him. It is an amount collected on the occasion of the sale, in the sale bills. This Court observed in this case “we are not inclined to accept the assessee's contention that the payments have been made voluntarily by the purchasers, for we have not been shown any instance in which the goods have been sold without charging the ‘mahimai’. We will have to, therefore, assume that the assessee would not have parted with the goods unless the purchasers agreed to pay the ‘mahimai’ also. It has, therefore, to be held that the amount of ‘mahimai’ collected by the assessee will form part of the turnover”.

12. The facts of the present case are similar to the facts considered by this Court in the case of Pandaria Pillai, [1973] 31 STC 108. The amounts were collected by the assessee herein from its customers at the rate of 15 paise for each bundle of match box sold, and were shown in the invoice. It is evident that so far as the purchaser of goods are concerned, the consideration paid by him for purchasing the goods from the assessee included the amount which the assessee chose to describe as mahimai and earmarked for the Vidhyasala. It was not the case of the assessee at any time that the customers made the contribution after the sale of the goods to them. It is the assessee who had collected it as obligations, consideration, though assessee earmarked it for charity and utilised the same for that purpose.

13. The argument that the definition of “turnover” in the Central Sales Tax Act is quite different from the definition of “turnover” in the Tamil Nadu General Sales Tax Act, and therefore, the amounts received towards mahimai are required to be excluded for the purpose of determining the turnover under the Central Sales Tax Act, cannot be accepted. The definition of “turnover” in the Central Sales Tax Act in section 2(j) also refers to the aggregate of the sale prices received and receivable by the assessee in respect of sales of any goods in the course of inter-State trade or commerce, made during any prescribed period and determined in accordance with the provisions of the Act and Rules made thereunder. “Sale price” is defined in section 2(h). Sale price means the amounts payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight, or delivery or the cost of installation in cases where such cost is separately charged. A combined reading of definitions of “sale price” and “turnover” in the Central Sales Tax Act shows that the aggregate amounts received by the dealer for the sale of the goods, less the amount allowed to be deducted or excluded to the extent mentioned in the Act and the Rules, constitute the consideration for the sale. The words used in the Central Act are “aggregate of sale prices”, which in effect means the aggregate of the consideration for which the goods are sold. The difference in the terminology used in the State Act and the Central Act does not make any qualitative difference, as the aggregate amount referred to in section 2(j) of the Central Act is only with reference to the consideration for which the goods are sold. The amounts received as “mahimai” were included in the bills at the rate of 15 paise per each bundle of match box. It is clear that the mahimai collected by the assessee for the specific purpose of being spent for the charitable purposes mentioned in the bills would form part of the sale price and forms part of the amount payable as consideration for the sale of the goods. The ratio of the decision of this Court in the case of Pandaria Pillai, [1973] 31 STC 108 is applicable to the assessments under the Central Sales Tax Act, also. The decision of this Court in the case of Pandaria Pillai, [1973] 31 STC 108, is still good law and has not been expressly or impliedly overruled by the decision of the apex Court.

14. We do not therefore find any infirmity in the order of the Commissioner. Consequently, these appeals are dismissed, but in the circumstances without costs.

15. Appeals dismissed.