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Yadalam Lakshminarasimhiah Setty & Sons v. State Of Mysore
Factual and Procedural Background
These are connected civil revision petitions arising out of the same order. The court first considered C.R.P. No. 964/61. The core factual matrix, as stated in the opinion, is that the petitioner effected inter‑State sales of textiles manufactured by powerlooms during the period from 1 July 1957 to 31 March 1958. The legal question concerned whether the tax liability under the Central Sales Tax Act ("the Act") on those inter‑State sales could be greater than what would have been the tax if the sales had been intra‑State and therefore taxable under the Mysore Sales Tax law (Mysore Sales Tax Act, 1948 and Mysore Sales Tax Act, 1957).
The notification bringing section 6 of the Central Sales Tax Act into effect was issued on 26 March 1957 and came into force on 1 July 1957. Some amendments to the Act came into force on 1 October 1958; references in the judgment to the "Act" refer to the Act as it stood prior to 1 October 1958.
Procedurally, for C.R.P. No. 964/61 the court determined that the disputed transactions fall within sub‑section (2) of section 8 of the Central Sales Tax Act and remitted the matter to the Mysore Sales Tax Appellate Tribunal to determine the tax due in light of the court's directions; the parties were directed to bear their own costs in this Court.
A separate revision petition (identified in the opinion as Civil Revision Petition No. 1393 of 1961) raised the single issue whether a licence fee imposed on the petitioner under the Mysore Sales Tax Acts (1948 and 1957) was a "tax" within the meaning of the expression used in section 8 of the Central Sales Tax Act. The Sales Tax Appellate Tribunal had held that the licence fee was not such a "tax." This Court disagreed, set aside the Tribunal's order and remitted the matter back to the Tribunal for determination on the basis that the licence fee is a "tax" within section 8 of the Act; no costs were awarded.
Legal Issues Presented
- Whether, on the facts and circumstances of C.R.P. No. 964/61, the tax liability of the petitioner under the Central Sales Tax Act on his inter‑State sales can be any more than what it would have been had they been intra‑State sales and liable to be taxed under the Mysore Sales Tax law.
- Whether the licence fee imposed on the petitioner under the Mysore Sales Tax Acts (1948 and 1957) is a "tax" within the meaning of that expression found in section 8 of the Central Sales Tax Act (considered in Civil Revision Petition No. 1393 of 1961).
Arguments of the Parties
Petitioner's Arguments (Shri K. Srinivasan)
- Agreed that the disputed transactions do not fall within subsection (1) of section 8 but contended they come within subsection (2) of section 8.
- Interpreted section 8(2) to mean that a "sale" in the course of inter‑State trade or commerce shall be taxed under the Central Sales Tax Act at the same rate and in the same manner as it would have been taxed under the appropriate State law if it had been an intra‑State transaction, but without taking into consideration the minimum turnover fixed by the State law for determining the dealer's liability under the State sales tax law (i.e., dealer exemptions based on minimum turnover are to be ignored for the purpose of computing central tax under s. 8(2)).
- Contended that the proviso to section 8(1) deals with sales (and not goods), a position noted in the opinion although the Court described the controversy on that point as pointless for present purposes.
Government Pleader's Arguments (Shri D.M. Chandrasekhar)
- Asserted that, while section 8(2) makes inter‑State sales liable to be taxed at the rate mentioned in the State sales tax law for similar intra‑State sales, the right of the Central Sales Tax Authorities to tax any sale in the series is not in any manner controlled by provisions contained in the State sales tax law.
- Argued that if section 8(2) were ambiguous the Court should take aid from section 8(1) to facilitate a harmonious construction; he suggested that a dealer complying with the requirements of section 8(1) (read with section 8(3)) might be in a worse position under the petitioner's interpretation of section 8(2).
- Suggested that the words "same manner" in section 8(2) referred to procedural aspects of assessment rather than to the manner of computation of tax.
- Contended that the word "generally" in the proviso to section 8(1) should be read as meaning "totally," so that the proviso would apply only to goods totally exempt under State law (for example goods in a State's Schedule of totally exempt items), not to goods taxed at some points.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bank of Chettinad Ltd. v. Commissioner of Income‑tax, Madras, A.I.R. 1940 P.C. 183; 8 I.T.R. 522 | Used as the source in which a passage from Inland Revenue Commissioners v. Duke of Westminster was cited with approval; that passage emphasizes that taxation must follow the plain words of the statute and not be imposed by reference to the "spirit" of the law. | The Court relied on the passage cited in Bank of Chettinad (which itself quoted Duke of Westminster) to support its approach that tax liability must be determined by the plain words of the statute and not by inference or analogy; this supported the Court's refusal to depart from the grammatical construction of section 8(2). |
| Inland Revenue Commissioners v. Duke of Westminster [1936] A.C. 1 | The principle quoted: subjects are taxable only by the plain words of a statute applicable to the facts; courts should not tax by inference, analogy, or the "spirit" of the statute. | The Court cited this principle (via Bank of Chettinad) to justify adherence to the literal/grammatical construction of section 8(2) and to reject arguments that would tax by reference to broader policy or spirit rather than statutory language. |
| Partington v. Attorney‑General (quoted by Lord Cairns in the Duke of Westminster passage) | Affirms the fiscal principle that if a person falls within the letter of a taxing law he must be taxed, and if not, he is free regardless of the spirit of the law. | The Court included this quote to reinforce the principle that statutory text governs tax liability; it was applied to support the Court's insistence on grammatical construction of the taxing provision (section 8). |
| C.R.P. No. 1533 of 1960 (judgment of this Court) | Referred to by the Court as having reasons relevant to whether a licence fee is a "tax" within section 8 of the Central Sales Tax Act. | The Court relied on the reasons given in its earlier judgment in C.R.P. No. 1533 of 1960 (and also C.R.P. No. 635 of 1961) to support its conclusion that the licence fee levied on the petitioner is a "tax" within the meaning of section 8. |
| C.R.P. No. 635 of 1961 (judgment of this Court) | Also referred to by the Court in connection with the characterization of licence fees as "tax" for the purposes of section 8. | The Court cited this earlier decision, along with C.R.P. No. 1533 of 1960, to justify setting aside the Tribunal's view that the licence fee was not a "tax" and remitting the matter for determination on that basis. |
Court's Reasoning and Analysis
The Court's analysis focused primarily on the correct interpretation of sub‑section (2) of section 8 of the Central Sales Tax Act. It proceeded in discrete steps, reflecting the text of the opinion:
- Identification of the statutory provision at issue: the Court set out section 6 (operative date of tax liability) and identified section 8 (and specifically sub‑sections (1), (2) and (3)) as the provisions governing the rate and manner of tax calculation for inter‑State sales.
- Agreement on the preliminary point: both counsel agreed the disputed transactions did not fall within section 8(1) but did fall within section 8(2); the only dispute was the proper interpretation of section 8(2).
-
Textual parsing of section 8(2): the Court parsed three distinct expressions in the provision:
- “the tax payable shall be calculated at the same rate and in the same manner as would have been done if the sale had in fact taken place inside the appropriate State”;
- “for the purpose of making such calculation”; and
- “notwithstanding that he, in fact, may not be so liable under that law”.
- On the import of "notwithstanding that he, in fact, may not be so liable under that law": the Court noted this clause refers to the "dealer" (i.e., the person), not to the sales. It observed that State Sales Tax Acts commonly provide dealer exemptions (for example, exemptions for dealers whose turnover is below a statutory threshold). Section 8(2) removes that dealer exemption for the purpose of calculating central tax — the dealer is to be deemed a dealer liable under the State law for the purpose of calculation, even if he would not, in fact, be so liable under State law.
- Policy explanation (stated by the Court): the Court explained the practical rationale given in the text — inter‑State dealings are ordinarily a fraction of a dealer's total dealings, so the State's reason for a minimum turnover threshold (to exempt petty traders) disappears for inter‑State dealings; consequently, section 8(2) eliminates the State's minimum turnover exemption when calculating central tax on inter‑State sales.
- Rejection of alternate readings: the Court rejected the Government Pleader's contention that "same manner" referred to assessment procedure. The Court also rejected the contention that interpreting section 8(2) as the petitioner urged would produce an irrational advantage to certain dealers; it found no showing that the burden under section 8(2) would be less than under section 8(1), and it analyzed the proviso to section 8(1) which can reduce or eliminate the tax under s. 8(1) when State law either generally exempts the sale or taxes it at a lower rate.
- On use of section 8(1) to construe section 8(2): although the Government Pleader suggested using s. 8(1) and s. 8(3) to resolve ambiguity in s. 8(2), the Court said it found no difficulty in interpreting s. 8(2). The Court nevertheless considered s. 8(1) and its proviso and found no incongruity between its interpretation of s. 8(2) and the provisions of s. 8(1).
- Reliance on established principle of statutory construction: the Court invoked the principle (via cited authorities) that in taxation cases courts must adhere to the plain words of the statute and must not tax by inference or the "spirit" of the statute. The Court used this principle to justify its grammatical construction of section 8(2).
- Conclusion as to s. 8(2): the Court held that the present case falls within s. 8(2), and therefore the disputed transactions are liable to be taxed at the same rate and in the same manner as if they had been intra‑State transactions — and, as they had not been so taxed, the matter was remitted to the Mysore Sales Tax Appellate Tribunal to determine the tax due in accordance with the Court's directions.
- On the licence fee issue: with respect to Civil Revision Petition No. 1393 of 1961, the Court addressed whether the licence fee levied under the Mysore Sales Tax Acts was a "tax" within section 8. Relying on reasons given in the Court's earlier judgments (C.R.P. No. 1533 of 1960 and C.R.P. No. 635 of 1961), the Court held the Tribunal's view was incorrect, set aside the Tribunal's order, and remitted the case back to the Tribunal for determination on the basis that the licence fee is a "tax" within the meaning of section 8.
Holding and Implications
Holding (C.R.P. No. 964/61): The Court held that the disputed inter‑State sales fall within sub‑section (2) of section 8 of the Central Sales Tax Act and are liable to be taxed at the same rate and in the same manner as they would have been taxed if they had been intra‑State transactions.
Direct effect and disposition (C.R.P. No. 964/61):
- The case is remitted to the Mysore Sales Tax Appellate Tribunal to determine the tax due from the petitioner in the light of the Court's directions regarding the interpretation and application of section 8(2).
- The parties will bear their own costs in this Court.
Holding (Civil Revision Petition No. 1393 of 1961 — licence fee issue): The Court held that the licence fee levied on the petitioner under the Mysore Sales Tax Acts is a "tax" within the meaning of that expression found in section 8 of the Central Sales Tax Act.
Direct effect and disposition (Civil Revision Petition No. 1393 of 1961):
- The Court set aside the order of the Sales Tax Appellate Tribunal and remitted the case to that Tribunal for determining the petitioner's liability on the basis that the licence fee is a "tax" within section 8.
- No costs were awarded by this Court in that matter.
Broader implications: The opinion explains and applies a textual/grammatical approach to section 8(2), and relies on established principles that taxation depends on the plain words of the statute. The opinion does not purport to lay down a sweeping new precedent beyond the interpretations it applies to the facts before the Court; the immediate practical consequences are remittal to the Tribunal for recalculation and determination in accordance with the Court's findings.
K.S Hegde, J.:— These are connected matters. They arise out of the same order. But we shall first take up for consideration C.R.P No. 964/61
2. The question for consideration in C.R.P No. 964/61 is whether on the facts and circumstances of that case, the tax liability of the petitioner, under the Central Sales Tax Act, to be referred to as “the Act” hereinafter, on his inter-State sales can be any more than what it would have been had they been intra-State sales and liable to be taxed under the Mysore Sales Tax Law. The turnover in question relates to sales effected by the petitioner in the course of inter-State trade or commerce during the period commencing from 1st July, 1957, and ending on 31st March, 1958. The disputed turnover relates to sale of textiles manufactured by means of powerlooms. Under the Mysore Sales Tax Act of 1948, those goods were liable to be taxed under section 3(2) read with Schedule 1, entry 2(a), of that Act and under the Mysore Sales Tax Act, 1957, those goods are liable to tax under section 5(3) read with entry No. 7 in Schedule II of the Act had they been intra-State transactions. The charging section in the “Act”, i.e, section 6, came into force on 1st July, 1957. Some of the provisions of the Act were amended on 1st October, 1958. In the course of this order, whenever reference is made to the “Act” it should be understood as referring to the provisions of the Act as they stood prior to 1st October, 1958 (the amending Act i.e, Act XXXI of 1958, which came into force on 1st October, 1958).
3. Section 6 of the Act says:
“Subject to the other provisions contained in the Act, every dealer shall, with effect from such date as the Central Government may, by notification, in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales effected by him in the course of inter-State trade or commerce during any year on and from the date so notified.”
4. Notification referred to in section 6 was issued on 26th March, 1957, but it came into force on 1st July, 1957.
5. For finding out the rate at which the tax has to be calculated and the manner in which it has to be calculated, on the sale of any goods in the course of inter-State trade Or commerce we have to look to section 8 of the “Act”. For our purpose, the material portions of section 8 are those found in sub-sections (1), (2) and (3).
6. Both the learned Government Pleader and Shri K. Srinivasan, the learned counsel for the petitioner, agree that the transactions in dispute do not fall within the ambit of sub-section (1) of section 8. They are also agreed that those transactions come within the scope of sub-sec. (2) of that section. But they are not agreed as to the true effect of that sub-section, i.e, sub-sec. (2) of section 8. According to Shri Srinivasan, that sub-section lays down that a “sale” in the course of inter-State trade or commerce shall be taxed under the “Act” at the same rate and in the same manner as it would have been taxed, under the appropriate State law, if it had been an intra-State transaction, but without taking into consideration the minimum turnover fixed by the State law for the purpose of determining the liability of the “dealer” to be assessed under the State sales tax law; whereas according to Shri D.M Chandrasekhar, the learned Government Pleader, while under section 8(2) the inter-State sales are made liable to be taxed at the rate mentioned in the State sales tax law, for similar intra-State sales, the right of the Central Sales Tax Authorities to tax any sale in the series of sales, is not in any manner controlled by the provisions contained in the State sales tax law.
7. The contention of the learned Government Pleader that the Parliament's power to regulate the levy of sales tax on inter-State sales, is not in any manner limited by the provisions contained in the appropriate State laws, is beside the point. We are not now dealing with the competence of the Parliament. We are merely called upon to interpret some of the provisions in the “Act”. Therefore, we have only to find out the true effect of the provisions contained in section 8(2).
8. sub-section (2) of section 8 says:
“The tax payable by any dealer in any case not falling within subsection (1) in respect of the sale by him of any goods in the course of inter-State trade or commerce shall be calculated at the same rates and in the same manner as would have been if the sale had, in fact, taken place inside the appropriate State, and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law” (underlining is ours).*
9. The learned Government Pleader thinks that the contention of Shri Srinivasan would have had force if section 8(2) had merely stated:—
“The tax payable by any dealer in any case not falling within subsection (1) in respect of the sale by him of any goods in the course of inter-State trade or commerce, shall be calculated at the same rate and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate State.”
10. But because of the remaining portion of that section, i.e, “and for the purpose of making any such calculation any such dealer shall be deemed to be dealer liable to pay tax under the sales tax law of the appropriate State notwithstanding that he, in fact, may not be so liable under that law”, the pattern of taxation is changed while retaining the rate fixed under the sales tax law of the State.
11. In construing sub-section (2) of section 8, we have to bear in mind three separate expressions. They are:
“(i) the tax payable shall be calculated at the same rate and in the same manner as would have been done if the sale had in fact taken place inside the appropriate State;
(ii) for the purpose of making such calculation, and
(iii) notwithstanding that he, in fact, may not be so liable under the law”.
12. There is no controversy as mentioned earlier as regards the “rate”. But then the calculation of the tax has to be made “at the same rate and in the same manner as would have been done if the sale had taken place inside the appropriate State”. What is the meaning of the words “same manner”? The learned Government Pleader's contention ignores those words. That is not permissible under the rules of construction of statutes. To get over that difficulty, the learned Government Pleader stated that those words referred to the procedure to be adopted while assessing the “dealer”. But the juxtaposition of the words “same manner” coming immediately after the words “at the same rate” clearly shows that they relate to the calculation of the tax. Therefore, there is no force in the contention that they deal with the procedure to be adopted in the matter of assessment. Then we have the words “and for the purpose of making any such calculation”. “Such calculation” refers to the calculation of tax at that rate and in the manner provided earlier.
13. What then the Parliament meant by saying;—“notwithstanding that he, in fact, may not be so liable under that law”.
14. We have to first notice that that clause refers to the “dealer” and not to the “sales” which are the subject-matter of taxation. Sales Tax Act usually provides for three types of exemptions. Some “dealers” are exempt from taxation. Some goods are exempt from taxation and some transactions are exempt from taxation. The clause referred to above ignores the exemption given to a dealer under the sales tax law of the appropriate State. For example, under the Mysore Sales Tax Act, 1957, all dealers whose turnover is less than Rs. 7,500 are exempt from taxation. That exemption is taken away by section 8(2) of the Act. The reason for this removal of exemption is obvious. The Central Sales Tax Act imposes tax only on inter-State sales. Inter-State dealings of a “dealer” would be ordinarily a fraction of his total dealings. Therefore the reason for fixing the minimum turnover for being liable to be taxed under the State tax law, i.e, being a petty trader, disappears. For the reasons mentioned above, we accept the interpretation placed by Shri Srinivasan on section 8(2).
15. The learned Government Pleader lastly contended that if, for any reason, we think that the language employed in sub-section (2) of section 8 is ambiguous, we should take the aid of section 8(1) in interpreting section 8(2), so as to facilitate a harmonious construction. We would like to make it plain that we found no difficulty in interpreting section 8(2). But yet we shall proceed to consider the contentions raised by the learned Government Pleader as regards the scope of section 8(1) and its bearing on the interpretation of section 8(2). According to him a “dealer” who complies with the requirements laid down in section 8(1) read with section 8(3) has to pay tax at the rate mentioned in section 8(1), but if our interpretation of section 8(2) is correct then a “dealer” who does not comply with the requirements of section 8(1) read with section 8(3) would be in a better position. We are not able to find out as to how this could be. Under section 8(1),
“Every dealer who, in the course of inter-State trade or commerce sells to a registered dealer goods of the description referred to in subsection (3) shall be liable to pay tax under this Act, which shall be one per cent. of his turnover.”
16. Sub-section (3) of section 8 says:
“The goods referred to in sub-section (1)(a) in the case of declared goods, are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re-sale by him; and
(b) in any other case, are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re-sale by him or for use by him in the manufacture of goods for sale or for use by him in the execution of any contract; and in either case include the containers or other materials used for the packing of goods of the class or classes of goods so specified”.
17. It is not shown to us that the burden of taxation under section 8(2) would be less than that under section 8(1). Proviso to section 8(1) makes it clear that the position would be otherwise. That proviso which in effect is an exception to section 8(1) says:—
“Provided that, if under the sales tax law of the appropriate State, the sale or purchase of any goods by a dealer is exempt from tax generally and not in specified cases or in specified circumstances or is subject to tax (by whatever name called) at a rate or rates which is or are lower than the rate specified in sub-section (1), the tax payable under this Act on the turnover in relation to the sale of such goods in the course of inter-State trade or commerce shall be nil or shall be calculated at the lower rate, as the case may be”.
18. Therefore, the tax to be levied under section 8(1) will be wiped out or reduced if the transactions in question come within the proviso, i.e (1) if, under the sales tax law of the appropriate State the sale or purchase of the goods concerned is exempt from tax generally and not in specified cases or in specified circumstances, then the sale of those very goods in the course of inter-State trade or commerce shall not be subject to any tax; and (2) if the sale of the goods concerned is subject to tax (by whatever name called) under the sales tax law of the appropriate State, at a rate or rates which is or are lower than the rate specified in sub-section (1), the tax payable under the “Act” on the turnover in relation to the sale of such goods in the course of inter-State trade or commerce is to be calculated at the lower rate. Hence, we see no incongruity between the provisions contained in section 8(1), and the provisions contained in section 8(2) as we have interpreted them. One other facet of the argument of the learned Government Pleader in this connection may also be noticed. He urged that the goods exempted under the proviso to sub-section (1) of section 8 are those goods which are “generally” exempt from taxation. According to him the word “generally” found in section 8(1) means “totally”; in other words, when that section speaks of goods “generally exempt from taxation” it refers to goods which are totally exempt from taxation as in the case of goods mentioned in Schedule V of the Mysore Sales Tax Act, 1957, and not the goods, the sale of which is taxed at one point or the other. But according to Shri K. Srinivasan the proviso does not deal with goods as such but deals with sales. To us this controversy appears to be pointless. Section 8(1) deals with certain class of sales in the course of inter-State trade or commerce and section 8(2) deals with inter-State sales which do not fall under section 8(1). Assuming, without deciding, that the evasion of the provisions contained in section 8(1) would be beneficial to dealers in certain goods—about which we are far from satisfied—that is no reason to depart from the grammatical construction of section 8(1). In a case like this no question of harmonious construction arises. In Bank of Chettinad Ltd. v. Commissioner of Income-tax, Madras A.I.R 1940 P.C 183; 8 I.T.R 522., we find the following passage in Inland Revenue Commissioners v. Duke of Westminster [1936] A.C 1. (quoted with approval by Lord Russell of Killowen) which appears to us apposite while dealing with the controversy above noticed:
“I confess that I view with disfavour the doctrine that in taxation cases the subject is to be taxed if in accordance with a Court's view of what it considers the substance of the transaction, the Court thinks that the case falls within the contemplation or spirit of the statute. The subject is not taxable by inference or by analogy, but only by the plain words of a statute applicable to the facts and circumstances of his case. As Lord Cairns said many years ago in Partington v. Attorney-General: ‘As I understand the principle of all fiscal legislation, it is this; if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.’”
19. For the reasons mentioned by us above, we are of the opinion that the present case comes within the scope of sub-section (2) of section 8, and the disputed transactions are liable to be taxed at the same rate and in the same manner as they would have been taxed if they had been intra-State transactions. Admittedly, they have not been so taxed. Therefore, the case will have to go back to the Mysore Sales Tax Appellate Tribunal for determining the tax due from the petitioner in the light of the directions given by us hereinbefore. The parties will bear their own costs in this Court.
(Civil Revision Petition No. 1393 of 1961).
20. The only question for consideration in this revision petition is whether the licence fee imposed on the petitioner is a “tax” within the meaning of that expression found in section 8 of the “Act”. The Tribunal below has opined that the licence “fee” levied on the petitioner under the Mysore Sales Tax Act, 1948, as well as under the Mysore Sales Tax Act, 1957, is not “tax” as contemplated in section 8 of the “Act”. For the reasons mentioned by us in our judgment in C.R.P No. 1533 of 1960 and C.R.P No. 635 of 1961, we hold that the view of the Sales Tax Appellate Tribunal is not correct.
21. We set aside the order of the Tribunal and remit the case back to that Tribunal for determining the liability of the petitioner on the basis that the licence fee levied on him is “tax” within the meaning of that expression found in section 8 of the “Act”. No costs.
22. Cases remitted.
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