Citation Codes

Equivalent Citations

citation codes

Case Number

T.R.C No. 26 of 1965

Attorney(S)

For the Appellant: Government Pleader

Judges

M.S Menon, C.J
P. Govindan Nair, J.

Acts

section 5(3)(a) of the Mysore Sales Tax Act, 1957, hereinafter called the State Act,
rule 11(2) of the Central Sales Tax (Registration and Turnover) Rules, 1957,
SECTION 8 A CENTRAL SALES TAX ACT 1956
sub-section (2); and sub-section (2) of section 9
rule 7 of the General Sales Tax Rules, 1950,
rule 7(a) of General Sales Tax Rules, 1950,
section 9(3) run thus:Section 8(2)
section 9(1) of the Central Act
section 5(3)(a) of the State Act.
section 9 of the Central Act.
General Sales Tax Act, 1125,
provision in section 9(3),
section 2(k) of that Act
Mysore Sales Tax Act,
[rule 7(1)(i)].

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Smart Summary

Structured Summary of the Opinion delivered by Govindan Nair, J.

Factual and Procedural Background

The petitioner was assessed for tax under section 8 of the Central Sales Tax Act, 1956 ("the Act"). The narrow question presented to the Court was whether, when fixing the petitioner's turnover for the purpose of imposing tax under section 8, the turnover component represented by excise duty paid by the assessee should be deducted. The matter proceeded as a Tax Revision Case; the Court heard competing submissions from counsel for the assessee and counsel for the departmental authorities, considered statutory provisions and rules, examined prior decisions of various courts, and delivered a decision directing modifications to the assessment and disposing of the Tax Revision Case with no order as to costs.

Legal Issues Presented

Whether the turnover represented by excise duty paid by the assessee must be deducted when determining turnover for tax imposed under section 8 of the Central Sales Tax Act, 1956.
Whether the discount claimed by the assessee is deductible in computing turnover for the Central Act assessment.
Whether duplicate C Forms produced before assessment are sufficient to grant the claimed exemption and the appropriate tax rate to be applied to the turnover covered by those forms.

Arguments of the Parties

Assessee's Arguments

By virtue of section 9(3) of the Central Sales Tax Act, 1956, assessment under the Central Act must be conducted "in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected." Therefore, the process of determining net turnover taxable should follow the General Sales Tax Act of the State and the rules framed under it, which allow deduction of excise duty (via rule 7(1)(i) of the General Sales Tax Rules, 1950).
Relied on the Supreme Court decision in The State of Mysore v. Yaddalam Lakshminarasimhiah Setty and Sons [1965] 16 S.T.C 231 to support the contention that "in the manner" in section 9(3) requires taxation to be as envisaged in the general sales tax law of the State, including points such as levy mechanics and turnover computation.

Department's Arguments

The Central Act itself provides a specific machinery for determination of turnover for Central Act assessments: the statutory definition of "turnover" in section 2(j) of the Central Act and rule 11(2) of the Central Sales Tax (Registration and Turnover) Rules, 1957. Those provisions prescribe specific deductions and a method for computing turnover for the purposes of section 8.
Where the Central Act and its rules provide a particular method for computation, the assessment must follow the Central Act's machinery and the rules made under it rather than the State general sales tax law or its rules. Counsel for the department supported this view by reference to decisions of several High Courts and this Court that accepted the Central Act machinery as determinative.
On the procedural point of C Forms, departmental counsel conceded before the Court that duplicate C Forms produced would be sufficient for the claimed exemption and that tax could be imposed at the rate of one per cent on the turnover covered by those C Forms.
On the discount issue, departmental counsel conceded that the decision reached on the excise-duty point must govern the discount point as well.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
S. Mariappa Nadar v. The State of Madras [1962] 13 S.T.C 371 (Madras High Court)	Accepted the view that the Central Act's rules/machinery for turnover computation govern (i.e., that State general sales tax rules need not be applied where Central rules prescribe a method).	The decision was cited by departmental counsel as supportive of applying Central Act rules; the Court noted it had been referred to in subsequent authorities but ultimately found the Supreme Court decision (Yaddalam) to be determinative.
Parvathi Mills (Pte.) Ltd., Quilon v. State Of Kerala [1962] 13 S.T.C 927 (This Court)	Accepted the view that Central Act's machinery governs turnover computation rather than State rules.	The decision was relied on by departmental counsel; the opinion records that this Court had earlier come to the same conclusion but treated those views as effectively negatived by the later Supreme Court majority decision.
The State of Mysore v. Mysore Paper Mills Ltd. [1964] 15 S.T.C 176 (Mysore High Court)	Took an identical position to the above High Courts in favor of the Central Act's machinery governing turnover computation.	The decision was cited by departmental counsel; the opinion notes it had been referred to in the dissenting judgment in the Supreme Court case but the majority of the Supreme Court did not rely on section 9 in dealing with that issue.
The State of Mysore v. Yaddalam Lakshminarasimhiah Setty and Sons [1965] 16 S.T.C 231 (Supreme Court)	Held that the phrase "in the same manner" in section 9(3) indicates taxation under the Central Act must be in the same manner as under the general sales tax law of the State; specifically determined that sales taxable at a single point under State law were not taxable at multiple points under the Central Act.	The Court regarded the Supreme Court's observations as dispositive. It interpreted the majority judgment as negating, at least by implication, the contrary views of the High Courts. On this basis, the Court held that the turnover represented by excise duty is to be deducted; it followed the Supreme Court's approach to the meaning of "in the manner" in section 9(3).

Court's Reasoning and Analysis

The Court analyzed statutory text, rules, and authorities in a sequence that can be distilled as follows:

Identification of the central statutory provision: the Court examined section 9(3) of the Central Sales Tax Act, 1956, which requires the appropriate State authorities to assess, collect and enforce payment of tax under the Central Act "in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected," subject to rules made under the Central Act.
Examination of State law position: The Court observed that under the General Sales Tax Act, 1125 (the State general sales tax law at issue), the definition of "turnover" and rule 7(1)(i) of the General Sales Tax Rules, 1950, make clear that amounts of excise duty paid by the dealer to the State or Central Government are to be deducted when computing turnover under that State law.
Consideration of the Central Act's machinery: The Court acknowledged the competing argument that the Central Act contains its own definition of "turnover" (section 2(j)) and a specific rule for deduction (rule 11(2) of the Central Sales Tax (Registration and Turnover) Rules, 1957) which prescribe how turnover is to be determined for Central Act purposes; departmental counsel relied on these Central Act provisions and on High Court decisions that applied the Central Act machinery.
Resolution by authority: The Court confronted conflicting High Court authorities that favored applying the Central Act machinery but found the Supreme Court decision in The State of Mysore v. Yaddalam Lakshminarasimhiah Setty and Sons to be decisive. The Supreme Court's majority held that the expression "in the manner" in section 9(3) indicated that taxation under the Central Act should be conducted in the same manner as under the State general sales tax law (for example, preserving single point taxation where State law provides it).
Application of the Supreme Court's reasoning: The Court interpreted the Supreme Court majority's reasoning as encompassing the assessee's contention that, in all respects, the taxation must follow the State law's manner. Consequently, the Court concluded that the deduction of excise duty from turnover—required by the State general sales tax law and its rules—must be applied for purposes of assessment under the Central Act.
Extension to related issues: The Court held that the discount claimed by the assessee similarly falls to be allowed as it is an item of deduction provided by rule 7(a) of the General Sales Tax Rules, 1950; the departmental counsel had conceded that the decision on the excise-duty point governed the discount point. On the C Forms issue, departmental counsel conceded that duplicate C Forms produced would be sufficient to grant the claimed exemption and that turnover covered by those forms should be taxed at one per cent; the Court accepted this concession and directed appropriate modifications.

Holding and Implications

Core Holding: The Court held that the turnover represented by the excise duty payable is to be deducted when fixing the turnover of the petitioner for the purpose of imposing tax under section 8 of the Central Sales Tax Act, 1956.

Implications and direct effects:

The deduction of excise duty from turnover must be given effect to in the petitioner's assessment under the Central Act.
The discount claimed by the petitioner is to be allowed on the same basis, as it is an item of deduction recognized under the State general sales tax rules and departmental counsel accepted the governing effect of the primary holding.
Duplicate C Forms produced before the assessment were held sufficient by departmental counsel and accepted by the Court; turnover covered by those C Forms is to be taxed at one per cent and necessary modifications to the assessment should be made.
The Tax Revision Case was disposed of in accordance with these directions, and there was no order as to costs.

The opinion does not state that it creates or announces any new legal precedent beyond applying the Supreme Court's interpretation in The State of Mysore v. Yaddalam Lakshminarasimhiah Setty and Sons; the decision chiefly applied that authority to the facts before the Court and directed consequential relief to the petitioner.

End of summary.

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Pothen Joseph And Sons v. State Of Kerala

The Judgment of the Court was delivered by

Govindan Nair, J.:— The question that arises for determination is whether in fixing the turnover of the petitioner for imposing tax on him under section 8 of the Central Sales Tax Act, 1956 (hereinafter called the Act) the turnover represented by the excise duty paid by the assessee should be deducted or not.

2. Shortly stated, the contention of the assessee is that by virtue of section 9(3) of the Act, the tax payable by him will have to be assessed “in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected.”

3. Section 9(3) reads thus:—

“The authorities for the time being empowered to assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India and subject to any rules made under this Act, assess, collect and enforce payment of any tax, including any penalty, payable by a dealer under this Act in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, appeals, reviews, revisions, references, penalties and compounding of offences, shall apply accordingly:

Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, by rules made in this behalf, make necessary provisions for all or any of the matters specified in this sub-section, and such rules may provide that a breach of any rule shall be punishable with fine which may extend to five hundred rupees; and where the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues.”

4. It is clear that had these sales been the subject-matter of assessment under the General Sales Tax Act, 1125, which is the general sales tax law of the State concerned, the turnover represented by the excise duty paid will have to be deducted. This is so because under the General Sales Tax Act, 1125, turnover by virtue of the definition in section 2(k) of that Act means the aggregate amount for which goods are bought by or sold by a dealer; and by virtue of rule 7 of the General Sales Tax Rules, 1950, which it is admitted are the rules applicable, the amounts of excise duty paid by the dealer to the State or to the Central Government shall be deducted [rule 7(1)(i)]. The question is whether in computing the turnover for the purpose of assessment under the Act, the provision in the above rules must be applied or not.

5. Counsel for the assessee would submit that by virtue of the provision in section 9(3), which we have already read, we must go through the whole process as envisaged by the General Sales Tax Act, 1125, and the rules framed thereunder to determine the net turnover taxable under that statute and then apply the rate provided by section 8(1) of the Act and assess the petitioner. On the other hand, on behalf of the department the learned counsel has stressed that the Central Act itself has provided a machinery for the determination of the turnover and since there is such a machinery provided by the Act and because of the provision in section 9(3) of the Act, that the assessment in the manner provided by the general sales tax law of the State can only be subject to the rules made under the Act, it is those rules that must govern and those rules alone must govern the matter. He invited our attention to the definition of “turnover” in section 2(j) of the Act which is in these terms:

“‘turnover’ used in relation to any dealer liable to tax under this Act means the aggregate of the sale prices received and receivable by him in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period and determined in the prescribed manner;”

6. He then invited our attention to rule 11(2) of the Central Sales Tax (Registration and Turnover) Rules, 1957, which runs thus:—

“In determining the turnover of a dealer for the purposes of section 8, there shall be deducted the following amounts from the aggregate of sale prices, namely:—

(a) the amount arrived at by applying the following formula—

rate of tax X aggregate of sale prices 100 plus rate of tax:

Provided that no deduction on the basis of the above formula shall be made if the amount by way of tax collected by a registered dealer, in accordance with the provisions of section 9A, has been otherwise deducted from the aggregate of sale prices;

Explanation.—Where the turnover of a dealer is taxable at different rates, the formula shall be applied separately in respect of each portion of the turnover liable to a different rate of tax.

(b) the sale price of all goods returned to the dealer by the purchaser of such goods within a period of three months from the date of delivery of the goods:

Provided that satisfactory evidence of such return of goods and such payment of the amount by way of refund in cash or adjustment in accounts, is produced before the prescribed authority.”

and contended that these provide a complete machinery for the fixation of the turnover for the purposes of the Central Act and there being thus a specific method provided by the Act and rules framed thereunder, there can be no scope for relying on the provisions for computation of turnover contained in the general sales tax law of the State or the rules framed thereunder. In this contention counsel is supported by more than one decision. The Madras High Court in the decision, S. Mariappa Nadar v. The Stale of Madras [1962] 13 S.T.C 371., has accepted this view. This Court also came to the same conclusion in Parvathi Mills (Pte.) Ltd., Quilon…* v. State Of Kerala…. [1962] 13 S.T.C 927.. And the Mysore High Court in the decision, The State of Mysore v. Mysore Paper Mills Ltd. [1964] 15 S.T.C 176., had also taken an identical position. But we are confronted by counsel on behalf of the assessee with the decision of the Supreme Court in The State of Mysore v. Yaddalam Lakshminarasimhiah Setty and Sons [1965] 16 S.T.C 231.. The question that arose for determination in that case was whether sales taxable at a single point according to the general sales tax law of the State, in that case the Mysore Sales Tax Act, were taxable at multipoints under the Act. The conclusion was reached that “in the manner” in section 9(3) of the Act already read indicated that taxation can be only in the same manner as it is done under the general sales tax law of the State. Therefore it was held that the transactions were only taxable at the single point as provided in the State law. This principle perhaps may stand by itself without affecting the question of the determination of the turnover. However we understand the observations of the Supreme Court in the majority judgment as comprehending the contention raised on behalf of the assessee that in all respects the taxation must be as envisaged in the general sales tax law of the State. We say so because the three decisions to which we have referred, those of the Madras High Court in S. Mariappa Nadar v. The State of Madras, of this Court in the same volume at page 927 (Parvathi Mills (Pte.) Ltd., Quilon…* v. State Of Kerala….) and of the Mysore High Court in State of Mysore v. Mysore Paper Mills Ltd., all have been referred to by his Lordship Justice J.C Shah in the dissenting judgment in The State of Mysore v. Yaddalam Lakshminarasimhiah Setty and Sons. At least by implication, though not expressly, the views expressed in these decisions have been negatived by the majority judgment. Their Lordships observed in the majority judgment:

“There has been considerable difference of opinion among the High Courts about the true construction of section 8(2), but none of them has relied on section 9 of the Central Act. Therefore, it is not necessary to refer to the cases cited before us.”

7. And the general remarks with reference to section 9(3) run thus:

“Section 8(2) provides for the method of calculating the tax under that sub-section, the tax shall be calculated at the same rates and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate State. The expression ‘in the manner’ may give rise to two conflicting views, namely, (i) it is concerned only with the calculation of the tax, and (ii) it deals not only with the calculation of the rates but also the manner of levy of the tax. But section 9(1) dispels the ambiguity for it says that the tax payable by any dealer under the Central Act shall be levied and collected in the appropriate State by the Government of India in the manner provided in sub-section (2); and sub-section (2) of section 9 empowers the appropriate State authorities to assess, collect and enforce payment of any tax payable by any dealer under the Central Act in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected. The expression ‘levy’ means ‘impose’. Under section 5(3)(a) of the Mysore Sales Tax Act, 1957, hereinafter called the State Act, tax shall be levied in the case of the sale of any of the goods mentioned in column (2) of the Second Schedule by the first or the earliest of successive dealers in the State, who is liable to tax under that section, a tax at the rate specified in the corresponding entry of column (3) of the said Schedule on the turnover of sales of such dealer in each year relating to such goods. When section 9(1) says that under the Central Act tax shall be levied in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected, it is reasonable to hold that the expression ‘levied’ in section 9(1) of the Central Act refers to the expression ‘levied’ in section 5(3)(a) of the State Act. There is no reason why the Central Act made a departure in the manner of levy of tax on the specified goods which are taxed only at a single point under the State Act; if any such radical departure was intended, the Central Act would have expressly stated so. The Central Act was passed to levy and collect sales tax on inter-State sales to avoid confusion and conflict of jurisdictions; the tax is also collected only for the benefit of the States. Therefore, the construction we accept avoids the anomaly of the State collecting tax on powerloom textiles only at a single point and the Centre, through the agency of the State authorities, collecting the said tax for and on behalf of the State at multipoints.”

8. We think the above observations conclude the matter. Therefore following the decision we hold that the turnover represented by the excise duty payable is to be deducted.

9. The same is the position so far as the discount claimed which is another question raised before us. We did not refer to this specifically at the beginning because the decision in regard to the first must necessarily govern this as well, this being an item of deduction provided by rule 7(a) of General Sales Tax Rules, 1950, framed under the General Sales Tax Act, 1125. Counsel on behalf of the department has conceded that the decision in regard to the first point must govern this point also.

10. The only other point raised in this Tax Revision Case is in relation to the production of the C Forms. The departmental authorities have declined to accept the duplicate of the forms produced before the assessment. Counsel on behalf of the department has conceded before us that the C Forms produced will be sufficient to grant the exemption claimed and that tax could be imposed only at the rate of one per cent. in relation to the turnover covered by the C Forms. We accept this and direct that such modifications as are necessary will be made in this regard.

11. We dispose of this Tax Revision Case in the above terms. There will be no order as to costs.

Pothen Joseph And Sons v. State Of Kerala

Structured Summary of the Opinion delivered by Govindan Nair, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Department's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Pothen Joseph And Sons v. State Of Kerala

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