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Commissioner, Sales Tax, U.P v. Suraj Prasad Gouri Shankar .
Factual and Procedural Background
The assessee, a commission agent operating in Varanasi and dealing inter alia in khandsari sugar, was assessed to sales tax for the years 1960-61 and 1961-62 on the turnover of khandsari sugar sold on behalf of its principals (manufacturers located in Uttar Pradesh). The assessee disputed this liability, relying on Notification S.T. 1365.X—990-1956 dated 1 April 1960 issued under Section 3-A of the U.P. Sales Tax Act, 1948. The Sales Tax Officer nevertheless levied tax under Section 3 of the Act. A reference was made to the Allahabad High Court under Section 11(1) of the Act (Sales Tax Reference No. 297 of 1967), which decided in favour of the assessee. The State appealed to the Supreme Court by special leave, resulting in the present decision.
Legal Issues Presented
- Whether, in view of the 1 April 1960 Notification issued under Section 3-A of the U.P. Sales Tax Act, a commission agent is liable to pay sales tax on the turnover of khandsari sugar manufactured within Uttar Pradesh and sold on behalf of the manufacturer for the assessment years 1960-61 and 1961-62.
Arguments of the Parties
Assessee’s Arguments
- The Notification specifies that khandsari sugar manufactured in Uttar Pradesh is taxable only at the point of sale by the manufacturer; therefore, a commission agent who is not the manufacturer is outside the tax net for these transactions.
Department’s Arguments
- Section 3 of the U.P. Sales Tax Act imposes liability on every dealer, including commission agents, for taxable turnover, and the Notification does not displace this statutory liability.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Irri Veera Raju v. The Commercial Tax Officer, (1967) 20 STC 501 (AP) | Interpretation of point-of-taxation notifications vis-à-vis dealer liability. | The Court noted that, if anything, its ratio ran counter to the State’s argument, offering no support for the appellant. |
| Ramalakshmana and Co. v. State of Madras, (1968) 21 STC 35 (Mad) | Cited by the appellant to support general liability of dealers. | Held irrelevant to the specific notification-based issue in the present case. |
| Commissioner, Sales Tax v. Ganga Ram Ghurey Lal, (1971) 27 STC 109 (All) | Another authority relied on by the appellant relating to dealer liability. | Found to have no bearing on the dispositive question before the Court. |
Court's Reasoning and Analysis
The Supreme Court focused on the legal effect of the 1 April 1960 Notification issued under Section 3-A. The Notification “supersedes” prior notifications and expressly declares that khandsari sugar manufactured in Uttar Pradesh is taxable “only at the point of sale by the manufacturer.” Because the khandsari sugar in question was admittedly manufactured within the State, the Court reasoned that:
- The statutory liability created by Section 3 is displaced to the extent provided in the Notification.
- Sales made by a commission agent on behalf of the manufacturer are, for the purposes of the Notification, deemed sales by the manufacturer himself.
- Accordingly, only the manufacturer, not the commission agent, can be assessed on the turnover of such sales.
- The High Court therefore correctly excluded the assessee from liability, and the precedents cited by the appellant did not alter this conclusion.
Holding and Implications
Appeals Dismissed with Costs.
Direct Effect: The commission agent (assessee) bears no sales-tax liability for the turnover of khandsari sugar manufactured in Uttar Pradesh during the relevant years; only the manufacturer is taxable at the specified point of sale. Broader Implication: The decision confirms that a point-of-taxation notification issued under Section 3-A can override the general charging provision in Section 3, confining tax liability strictly to the class of dealers identified in the notification. No new principle was fashioned, but the case reinforces the primacy of valid notifications in structuring sales-tax incidence.
K.S Hegde, J.— These appeals by special leave arise from the decision of the Allahabad High Court in Sales Tax Reference No. 297 of 1967 on its file. In that case the High Court was considering a reference under Section 11(1) of the U.P Sales Tax Act, 1948 (hereinafter to be referred to as “the Act”). The question referred for the opinion of the High Court was:
“Whether on the facts and in the circumstances of the case, the assessee acting as Commission Agent was liable to pay sales tax in the years 1960-61 and 1961-62 on the turnover of khandsari sugar manufactured by his principals?”
The assessee was carrying on the business of commission agency in Varanasi. He is also a dealer in oilseeds and kirana. In this case we are only concerned with his dealings in khandsari sugar. In respect of the assessment years in question a dispute arose between him and the Sales Tax Officer as to his liability to pay tax on the turnover relating to Khandsari sugar sold by him as Commission Agent, on behalf of his principals who manufactured sugar in U.P At this stage it may also be noted that the Khandsari sugar with which we are concerned in this case was not subjected to any additional excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957.
2. The assessee's contention was that in view of the Notification S.T 1365.X—990-1956, dated April 1, 1960, the turnover relating to Khandsari sugar manufactured in the State was liable to tax as from April 1, 1960, only at the point of sale by the manufacturer and that he not being a manufacturer was not liable to pay any sales tax. On the other hand it was contended on behalf of the Department that in view of Section 3 of the Act the assessee was liable to pay sales tax in respect of his dealings in Khandsari sugar.
3. It is not disputed that but for the notification referred to earlier the assessee would have been liable to pay sales tax in respect of his turnover relating to sale of Khandsari sugar in view of Section 3 of the Act. The only question that calls for an answer is whether in view of the Notification referred to earlier he is not liable to pay the tax in question. The Notification so far as it is material for our purpose reads thus:
“In exercise of the powers conferred by Section 3-A of the U. P Sales Tax Act, 1948 (U.P Act 15 of 1948), as amended from time to time the Governor of Uttar Pradesh is pleased to—
(i) Supersede, with effect from April 1, 1960, all the previous notifications so far as they relate to the goods mentioned in Column 2 of the Schedule hereto and the rates of sales tax given in such notifications, and
Declare that, with effect from April 1, 1960, the turnover in respect of the goods mentioned in Column 2 of the Schedule thereto shall be liable to tax only at the point of sale specified in Column 4 thereof and under the circumstances specified in Column 3 thereof.
(ii) The Governor is further pleased to declare that as from April 1, 1960, the rate of tax in respect of the turnover of individual goods mentioned in the aforesaid Column 2 shall be as mentioned against each goods in Column 5 of the Schedule here to:
Sl. No. Name of goods Circumstances under which to be taxed Point of sale Rate of tax 1 2 3 4 5 40 Khandsari sugar on which additional excise duty is not leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 or if leviable it has specifically been xempted from such levy (a) If imported from out side Uttar Pradesh (b) If manu-factured in Uttar Pradesh (a) Sale by importer (b) Sale by manufacturer 2 paise per rupee do
4. Khandsari sugar with which we are concerned in this case was manufactured in U.P That being so we are in agreement with the High Court that only the sales by the manufacturers are liable to be brought to tax under the Notification. The Notification referred to earlier, in our opinion, takes the present case outside the scope of Section 3 of the Act. The sales effected by the Commission Agent in view of that Notification must be considered as sales by the manufacturer himself. Consequently it is only the manufacturer that could have been taxed in respect of the turnover relating to those sales and not the Commission Agent.
5. Mr Karkhanis, the learned counsel for the appellant, relied on certain decisions rendered by some of the High Courts, namely, Irri Veera Raju v. The Commercial Tax Officer, Tadepalligudem, (1967) 20 STC 501 (AP) Ramalakshmana and Co. v. State of Madras (1968) 21 STC 35 (Mad) and Commissioner of Sales Tax v. Ganga Ram Ghurey Lal. (1971) 27 STC 109 (All) None of those decisions have any bearing on the point in issue in this case. If at all, the ratio of the decision in Irri Veera Raju case, runs counter to the arguments advanced on behalf of the appellant.
6. We see no substance in these appeals. These appeals are accordingly dismissed with costs. One hearing fee.
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