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George Oakes (P) Ltd. v. State Of Madras
Factual and Procedural Background
Five consolidated appeals were brought before the Supreme Court on certificates granted by the High Court of Madras. The appellants—Messrs George Oakes (Private) Ltd. (Civil Appeals 1–3 of 1961), Messrs Addison & Co. (Private) Ltd. (Civil Appeal 4 of 1961) and Messrs Rane (Madras) Ltd. (Civil Appeal 5 of 1961)—carry on business in motor cars and spare-parts. They challenged portions of the sales-tax assessments made for the accounting years 1950-51, 1951-52 and 1952-53 (George Oakes) and for the year ending 31 March 1952 (Addison & Co. and Rane).
Initially, the Madras High Court in Deputy Commissioner of Commercial Taxes v. M. Krishnaswami Mudaliar & Sons (1954) 5 STC 88 held that amounts collected as sales tax and paid to Government could not be included in a dealer’s “turnover.” To counter that result, the Legislature enacted the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (“Act 17 of 1954”), which deemed such collections to be part of turnover for sales made before 1 April 1954.
On reassessment, the Deputy Commercial Tax Officer added the tax collected to the appellants’ total turnover and levied: (i) the general tax of 3 pies per rupee on the entire turnover, and (ii) the additional tax of 6 pies per rupee on the turnover “relating to” specific goods listed in Section 3(2) of the 1939 Act. The Sales Tax Appellate Tribunal partly allowed the dealers’ appeals, holding that while tax collected could be included in turnover, it could only be taxed again at the basic rate of 3 pies and not at the additional rate of 6 pies.
The State of Madras sought revision under Section 12-B(1) of the 1939 Act. The High Court reversed the Tribunal, allowing both the basic and additional levies on the composite turnover. Certificates of fitness were granted, leading to the present Supreme Court appeals.
Legal Issues Presented
- Whether, after the validating Act 17 of 1954, the amounts collected by a dealer as sales-tax can be added to the turnover “relating to” goods specified in Section 3(2) of the Madras General Sales Tax Act, 1939, and thereby attract the additional levy of 6 pies per rupee—in effect, whether the statute permits an additional tax on an amount that itself represents tax.
Arguments of the Parties
Appellants’ Arguments
- The inclusion of tax collected in “turnover” and the imposition of an additional 6-pies levy thereon amount to a tax on tax, which the statute did not contemplate.
- The power to tax extends only to the “price” of the goods; the separately collected sales-tax component is not part of that price.
- Even if Act 17 of 1954 validates inclusion for the basic 3-pies levy, it does not justify extending the additional 6-pies levy to the same amount.
State of Madras’ Arguments
- The purchaser pays a single composite sum that includes tax; therefore the entire amount forms the dealer’s turnover.
- Act 17 of 1954 expressly deems pre-1954 tax collections to be part of turnover, leaving no statutory basis to exclude them from the Section 3(2) calculation.
- The dealer keeps the tax with his circulating capital until payment to Government, so treating it as part of turnover is economically and legally sound.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Deputy Commissioner of Commercial Taxes v. M. Krishnaswami Mudaliar & Sons (1954) 5 STC 88 | Held that tax collected could not be treated as part of turnover. | Identified as the decision the Legislature intended to override through Act 17 of 1954. |
| State of Madras v. Bangalore Automobiles (1956) 7 STC 537 | Authorised levy of both basic and additional tax on composite turnover. | High Court followed this ruling in the orders under appeal; Supreme Court affirmed that approach. |
| Sundararajan & Co. Ltd. v. State of Madras (1956) 7 STC 105 | Upheld constitutionality of Act 17 of 1954. | Cited to show that the validating legislation’s validity was already settled. |
| George Oakes (P) Ltd. v. State of Madras (1961) 12 STC 476 (Supreme Court) | Confirmed inclusion of tax in turnover and upheld Act 17 of 1954. | Earlier decision of the Supreme Court; the appellants did not press constitutional objections in the present appeals. |
Court's Reasoning and Analysis
The Court began by reiterating its own earlier holding in George Oakes (P) Ltd. that the term “turnover” legitimately embraces the tax component because a purchaser pays a single, composite sum for the goods plus tax, and the dealer temporarily utilises that money in his business.
Analysing Section 3 of the 1939 Act, the Court emphasised the textual difference between sub-sections (1) and (2): the former imposes the basic levy on the dealer’s “total turnover,” whereas the latter imposes an “additional” levy on turnover “relating to such goods.” The phrase “relating to such goods” mandates that, when computing turnover for the specified goods, the figure must include every element of the sale consideration—price and basic tax alike.
The logical sequence prescribed by the statute, according to the Court, is:
- Ascertain the dealer’s total turnover, including the 3-pies tax component.
- For goods attracting the additional levy, include the basic tax component and then apply the 6-pies rate to that enlarged figure.
- The same amount is not subjected to the 6-pies rate unless it relates specifically to the goods listed in Section 3(2); therefore, non-specified goods bear only the 3-pies levy.
The Court rejected the Tribunal’s view that only the minimum rate could be imposed on the tax element, finding no textual support for treating the tax component differently from other elements of sale consideration once Act 17 of 1954 deemed it to be part of turnover.
Holding and Implications
The appeals are dismissed. The Supreme Court affirmed the High Court’s restoration of the Deputy Commercial Tax Officer’s assessments, thereby allowing both the basic 3-pies levy and the additional 6-pies levy on the composite turnover for the specified goods.
Implications: The ruling confirms that, under the Madras General Sales Tax Act, 1939 read with the validating Act 17 of 1954, tax collected by a dealer forms part of “turnover” for all purposes, including the calculation of additional levies on specified goods. The decision settles the controversy over “tax-on-tax” in the context of pre-1954 transactions but does not establish any broader constitutional principle beyond what was already affirmed in George Oakes (P) Ltd.
The Judgment of the Court was delivered by
M. Hidayatullah, J.— These five appeals on certificates granted by the High Court of Madras were consolidated and heard together. They arise out of proceedings against the appellants under the Madras General Sales Tax Act, 1939. The appellants are three companies carrying on business of sale of motor cars, motor car spare parts, and other goods. Messrs George Oakes (Private) Ltd., have filed Civil Appeals Nos. 1 to 3 of 1961 questioning a part of the sales tax imposed on them for the years, 1950-51, 1951-52 and 1952-53. Civil Appeals Nos. 4 and 5 of 1961 have been filed respectively by Messrs Addison & Co. (Private) Ltd., and Messrs Rane (Madras) Ltd., questioning similarly a part of the tax imposed on them for the year ending March 31, 1952. The common question which has been raised by the appellants arises in the following circumstances.
2. Under the Madras General Sales Tax Act, 1939, “turnover” is defined inter alia as—
“the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration. ...”
3. Sales tax is levied on the dealers on their total turnover for each year of account at the rate of 3 pies for every rupee of turnover. This is laid down by Section 3(l)(a) and (b) of the Act. Under the second sub-section of Section 3, an additional tax of 6 pies for every rupee is leviable on the turnover relating to certain classes of goods. The section (omitting unnecessary portion) may be quoted here for further reference:
“3. Levy of taxes on sales of goods.—
(1) Subject to the provisions of this Act
(a) every dealer shall pay for each year a tax on his total turnover for such year, and
(b) the tax shall be calculated at the rate of three pies for every rupee in such turnover.
(2) Subject as aforesaid, the sale of any of the goods mentioned below shall be subject to a tax at the rate specified in respect thereof, at such single point in the series of sales by successive dealers as may be prescribed; and the tax shall be paid by the dealer concerned on his turnover in each year relating to such goods, and shall be in addition to the tax to which he is liable under sub-section (1) on his total turnover for the year:—
4. In Deputy Commissioner of Commercial Taxes v. M. Krishnaswami Mudaliar & Sons (1954) 5 STC 88 the Madras High Court held that amounts collected by a registered dealer from consumers by way of sales tax and paid over to the Government could not be included in the turnover of the registered dealer as part of the sale price of goods sold by him, and were not liable to be taxed again. The Madras Legislature then passed the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 (Act 17 of 1954). Section 2 of that Act provided that:
“In the case of sales made by a dealer before 1st April, 1954, amounts collected by him by way of tax under the Madras General Sales Tax Act, 1939 (Madras Act 9 of 1939) (hereinafter referred to as ‘the principal Act'), shall be deemed to have formed part of his turnover.”
5. The business of the three appellants included sales of goods described in the second sub-section of Section 3 of the Madras General Sales Tax Act as well as sales covered by the first sub-section. The Deputy Commercial Tax Officer included in the total turnover the tax chargeable, and then levied the tax on the turnover relating to goods liable to the additional tax, at the rate of 9 pies, and on the remaining turnover, at 3 pies for every rupee. The inclusion of the tax in the total turnover was objected to by these tradesmen. They appealed to the Special Commercial Tax Officer, but were unsuccessful. The Sales Tax Appellate Tribunal, on further appeal, held that though the tax could be included in the total turnover, tax on the tax so included could be levied only at 3 pies for every rupee, but the additional tax at 6 pies for every rupee could not be levied. It is not necessary to refer to all the orders that were passed in the several cases, but the following extract from one of them may be read:
“that when sales tax collected is included in the turnover, it will be proper to tax that amount only at the minimum rate of 3 pies in the rupee under Section 3(1) of the Act.”
6. The State of Madras then filed in the High Court applications for revision under Section 12-B(1) of the Madras General Sales Tax Act, and the High Court held that the tax could be levied on the consolidated amount not only at 3 pies for every rupee of turnover but also at b6 pies in respect of the turnover relating to goods liable to the additional tax. In doing so, the High Court merely followed its earlier decision reported in State of Madras v. Bangalore Automobiles (1956) 7 STC 537. The High Court, however, granted certificates of fitness, and these appeals have been filed. Earlier, the High Court had decided in Sundararajan and Co., Ltd. v. State of Madras (1956) 7 STC 105 that the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954 was validly enacted and was constitutional. The decision in Sundararajan and Co., Ltd. v. State of Madras (1956) 7 STC 105 was approved by this Court recently in George Oakes (Private) Ltd. v. State of Madras (1961) 12 STC 476 and though the point was raised in these appeals, it was not pressed at the hearing.
7. The question that is now raised and which alone survives, is whether the additional tax can be included in the turnover relating to the special goods and the resultant sum taxed at 6 pies for every rupee. In the earlier appeals ending with the decision of this Court in Messrs George Oakes case (1961) 12 STC 476 abovementioned, it was contended that the inclusion of the tax in the turnover would amount to the levy of a tax on tax, and that the power to levy the tax extended only to the levy of the tax on the price paid for the goods by the purchaser, which price did not include the tax paid separately. It was pointed out by this Court that the word “price” insofar as the purchaser is concerned, includes the tax also, and that in laws dealing with sales tax, turnover has, in England and America also, been held to include the tax. The reason for such inclusion is stated to be that the dealer who realises the tax does not hand it over forthwith to the Government but keeps it with him, and turns it over in his business before he parts with it. Thus, the tax becomes, for the time being, a part of the circulating capital of the tradesman, and is turned over in his business. Again, it was said that the price paid by the purchaser was not so much money for the article plus tax but a composite sum. Therefore, in calculating the total turnover, there is nothing wrong in treating the tax as part of the turnover, because “turnover” means the amount of money which is turned over in the business. In the case to which we have referred, the validating Act was declared valid and constitutional. In the present appeals, we are required to work out the result of the validating Act in respect of the additional tax, because insofar as the collection of tax at 3 pies for every rupee of turnover is concerned, no difficulty presents itself.
8. The scheme of the Act shows that there is to be a tax of 3 pies on every rupee of turnover for all classes of goods except those which might be exempted. Then, there is a further additional tax of 6 pies on every rupee of the turnover in respect of certain classes of goods. This additional tax is leviable not on the total turnover but on the turnover in each year “relating to such goods”. The words “relating to such goods” show that the turnover for purposes of the additional tax is the total of all sale prices including, of course, the tax at 3 pies relating to the special goods. The additional tax is then levied on that turnover. But then, in determining the taxable turnover in respect of the special goods, the tax chargeable at 6 pies for every rupee must be included. The necessary consequence is that for those goods which bear a tax of 3 pies on every rupee, the tax would be calculated on total amounts received by the tradesman including the tax at 3 pies for every rupee, and for those goods which bear the additional tax, the tax would be calculated on the total amounts received by the tradesman including the tax at 9 pies per rupee. In this way, the tradesman pays tax at the rate of 3 pies for every rupee on all the goods and an additional tax of 6 pies on every rupee of the turnover relating to certain classes of goods. But, though he pays tax on the tax charged by him in the price, the tax at different rates goes into different turnovers, and there is no additional tax at 6 pies on those goods on which such tax is not imposed by the Act.
9. In our opinion, this is what the Deputy Commercial Tax Officer has ordered, and the High Court was right in setting side the order of the Sales Tax Appellate Tribunal, and restoring the order of the Deputy Commercial Tax Officer.
10. The appeals thus fail, and are dismissed; but in the circumstances of these cases, we make no order about costs.
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