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Sales Tax Officer, S... v. Coal And Coke Suppli...
Factual and Procedural Background
The appeals arise out of a common judgment dated 19 December 1973 of the Allahabad High Court allowing four writ petitions filed by M/s Coal & Coke Supplies Corporation, Kanpur (“the assessee”) for Assessment Years 1967-68 to 1970-71 under the Central Sales Tax Act, 1956. The assessee, describing itself as a coal agent, asserted that it merely forwarded customers’ orders to collieries in Bihar/West Bengal, that coal moved directly by rail to purchasers in Uttar Pradesh, and that central sales tax had already been charged and deposited in the State of origin. The High Court quashed the assessment orders on the sole ground that, being an unregistered dealer, the assessee could not be taxed in the receiving State under the then-existing proviso to Section 9(1) of the Act. The State Sales Tax Officer appealed to the Supreme Court.
Legal Issues Presented
- Whether, after the retrospective amendment introduced by Act 103 of 1976, the proviso to Section 9(1) of the Central Sales Tax Act imposes sales-tax liability on unregistered dealers in respect of subsequent sales during inter-State movement of goods.
- Whether, on the facts, the assessee effected “subsequent sales” of coal by endorsement of railway receipts so as to attract the amended proviso.
Arguments of the Parties
Appellant (Sales Tax Officer)
- There were two categories of transactions: (i) agency transactions, and (ii) transactions in which the assessee bought coal on its own account and later endorsed documents of title, thereby effecting subsequent sales during movement.
- The amended proviso to Section 9(1) now expressly covers subsequent sales by unregistered dealers (clause (b)), with full retrospective effect from 1957. Hence tax is leviable for the years in question.
Respondent (Assessee)
- The proviso, even as amended, applies only when a dealer effects a subsequent sale; the assessee asserts it acted merely as an agent and did not carry on any business of buying or selling goods on its own account.
- Therefore no “subsequent sale” occurred, and the amended proviso is inapplicable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Kasturi Lal Har Lal v. State of U.P., (1972) 29 STC 495 (Allahabad HC) | Held that an unregistered dealer is not liable to be taxed under proviso to Section 9(1) in the receiving State. | Relied on by the High Court to quash the assessments; Supreme Court notes its effect is neutralised by the 1976 amendment. |
| State of U.P. v. Kasturi Lal Har Lal, Civil Appeal No. 5 (NT) of 1975 (Supreme Court) | Affirmed the Allahabad High Court’s view in Kasturi Lal Har Lal regarding unregistered dealers. | Mentioned to show that the earlier principle has been overridden retrospectively by statutory amendment. |
Court's Reasoning and Analysis
The Supreme Court observed that the High Court disposed of the writ petitions solely on the basis that only registered dealers could be taxed under the pre-1976 proviso. In light of Act 103 of 1976, which retrospectively amends the proviso to tax both registered and unregistered dealers—placing liability, in the latter case, on the State where the subsequent sale is effected—the foundation of the High Court’s judgment no longer holds.
Because the High Court had not examined the factual question whether the assessee actually effected “subsequent sales” by endorsing railway receipts, the Supreme Court found it inappropriate to determine liability without findings on that issue. It therefore set aside the judgment and remanded the matter for a fresh determination, permitting both sides to file additional affidavits on the factual matrix and to argue the applicability of the amended proviso.
Holding and Implications
APPEALS ALLOWED; HIGH COURT JUDGMENT SET ASIDE; MATTER REMANDED FOR FRESH DISPOSAL.
Immediate effect: the writ petitions will be reheard by the Allahabad High Court, which must now consider the factual nature of the assessee’s transactions in light of the retrospectively amended proviso to Section 9(1). Broader implication: unregistered dealers may be subjected to central sales tax on subsequent inter-State sales for past periods owing to the retrospective amendment, but no final precedent on factual application is set by this remand order.
S. Ranganathan, J.— These four appeals are from the common judgment of the Allahabad High Court dated December 19, 1973 in Writ Petitions Nos. 2706, 2784, 2785 and 2786 of 1973. They can be disposed of by a common order as they relate to the case of the same respondent M/s Coal & Coke Supplies Corporation of Kanpur (hereinafter referred to as “the assessee”). They relate to the four Assessment Years 1967-68, 1968-69, 1969-70 and 1970-71 and involve the same issue as to the interpretation of the provisions of the Central Sales Tax Act, 1956 (“the Act” for short).
2. The assessee had filed the writ petitions praying for the issue of writs of certiorari to quash the assessment orders passed for the assessment years in question resulting in demands of various amounts of sales tax from the assessee.
3. The assessee made the following averments in the writ petition:
“The petitioner is a Coal Agent pure and simple carrying on his business at Kanpur. He does not take actual delivery of goods. The prospective purchasers in U.P place their orders or register their demand for the purchase of coal with the petitioner, who in turn forwards the demand to Jharia or Calcutta. The coal is despatched by the collieries invariably by rail and the R/Rs are either made out direct in the names of the purchasers or alternatively in the name of the petitioners.
The collieries send these R/Rs in each case to the petitioners at Kanpur. The R/Rs which are made out direct in the names of purchasers are handed over as such to the purchasers for taking delivery of the coal from the railways, after making payment of the railway freight etc. Others which are made out in the name of the petitioners are endorsed by them to the respective purchasers who in turn take delivery of coal from the railway on payment of freight charges etc. The petitioners do not handle the goods, as such. The suppliers charge central sales tax in their bills and deposit the same in Bengal/Bihar.
The petitioner did not purchase any goods from outside the State nor did he ever keep stock of any goods, with him.”
The assessee contended that the above transactions only gave rise to inter-State sales which were taxable under Section 9(1) of the Act in the State of origin, namely, Bihar or West Bengal. According to the assessee, sales tax could be charged and assessed on it only if there had been subsequent sales within the meaning of the proviso to Section 9(1) of Central Sales Tax Act but there were none. It was further contended that even the charge under proviso was attracted only in the case of registered dealers. The assessee not being a registered dealer, it was urged, this proviso was not applicable and hence no sales tax was leviable. Strong reliance was placed on behalf of the petitioner on a decision of the Allahabad High Court in Kasturi Lal Har Lal v. State of U.P (1972) 29 STC 495
4. The writ petitions were disposed of by the High Court on a very short ground. After referring to the petitioners' challenge to the validity of the assessment orders on the ground that, since it was an unregistered dealer, the proviso was inapplicable and, therefore, it could not be assessed to central sales tax by the State of Uttar Pradesh, which was the State where the coal was consumed, the court proceeded to observe:
“The modus operandi of the petitioner's business is that the purchasers from him in the State of Uttar Pradesh place their orders with him. The petitioner in his turn forwards the orders to the manufacturers of coal at Jharia in Bihar or Calcutta in the State of West Bengal. The collieries despatch the coal by railway and the railway receipt is either made out in the name of the purchaser or in the name of the petitioner. The petitioner endorses the railway receipt and hands the same over to the purchaser. The purchaser takes delivery of the coal from the railway authorities. It is thus clear that the movement of coal starts in the State of Bihar or West Bengal and the same is consumed in the State of Uttar Pradesh. In Kasturi Lal Har Lal v. State of U.P (1972) 29 STC 495 a Division Bench of this Court has held that an unregistered dealer would not be liable to tax under the Central Sales Tax Act by the receiving State. Since the State of U.P was the receiving State in respect of the coal in dispute the sales tax authorities of this State had no jurisdiction to assess the turnover of this coal and to tax the same under the Central Sales Tax Act.”
5. The Sales Tax Officer has preferred these appeals from the judgment of the Allahabad High Court. Shri Manchanda, learned counsel appearing on behalf of the appellants, submitted that there were two types of transactions entered into by the assessee. In some cases it placed orders with the collieries on behalf of the constituents in U.P and when the goods were received delivered the same to them. In respect of these transactions perhaps it could be said that the assessee was only functioning as an agent. However, it was urged, there were certain transactions in which the assessee placed orders with the collieries on its own account and, when these goods were in the process of transit, it sold them away by endorsement of the documents of title for consideration. In respect of these transactions, counsel says, the assessee was acting as a dealer effecting subsequent sales and, that, therefore, liability was attracted under the proviso to Section 9(1).
6. It should be mentioned here that, at the time, when the High Court decided the matter, the said proviso read as follows:
“Provided that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods, the tax shall, where such sale does not fall within sub-section (2) of Section 6, be levied and collected in the State from which the registered dealer effecting the subsequent sale obtained or, as the case may be, could have obtained, the form prescribed for the purposes of clause (a) of sub-section (4) of Section 8 in connection with the purchase of such goods.”
In other words, it cast a liability only on a registered dealer. This is what was pointed out by the Allahabad High Court, following the decision in Kasturi Lal Har Lal v. State of U.P (1972) 29 STC 495 which has also been subsequently affirmed by this Court in the case reported as State of U.P v. Kasturi Lal Har Lal Civil Appeal No. 5 (NT) of 1975.
7. Shri Manchanda, however, submits that the position has changed by reason of the amendments made to the Act by Act 103 of 1976. By this amendment Act the proviso to Section 9(1) has been amended to read as follows:
“9. Levy and collection of tax and penalties.—***
Provided that, in the case of a sale of goods during their movements from one State to another, being a sale subsequent to the first sale in respect of the same goods and being also a sale which does not fall within sub-section (2) of Section 6, the tax shall be levied and collected—
(a) where such subsequent sale has been effected by a registered dealer, in the State from which the registered dealer obtained or, as the case may be, could have obtained, the form prescribed for the purposes of clause (a) of sub-section (4) of Section 8 in connection with the purchase of such goods, and
(b) where such subsequent sale has been effected by an unregistered dealer, in the State from which such subsequent sale has been effected.
Section 9 of the Amendment Act also enacted a validation provision in the following terms:
“9. Validation.—(1) The provisions of Section 9 of the principal Act shall have effect, and shall be deemed always to have had effect, in relation to the period commencing on the 5th day of January, 1957, and ending with the date immediately preceding the date of commencement of this Act as if that section also provided....”
Counsel points out that the new proviso to Section 9(1) has been substituted with full retrospective effect and that, therefore, the position today is that, even for the assessment years in question here, clause (b) of the new proviso will have effect and will impose a tax liability even in the hands of unregistered dealers. Learned counsel, therefore, submits that decision of the High Court has to be set aside or modified in view of this retrospective amendment.
8. It is not in dispute before us that the retrospective amendment has nullified the effect of the decision of the High Court insofar as it laid down that under the proviso only registered dealers should be taxed and not unregistered dealers. Shri Rohtagi, learned counsel for the assessee, however, submits that this circumstance is totally immaterial because, according to him, in the present case, the terms of the proviso are not attracted at all. Learned counsel points out that the proviso, both before and after its amendment, comes into operation only where there is subsequent sale by a dealer in the State. He submits that the assessee in the present case was not a dealer at all as he did not carry on any business of buying, selling, supplying or distributing goods belonging to any principal and that, in any event, there was no subsequent sale effected by him within the meaning of proviso to Section 9(1). He submits that the modus operandi of the assessee's business as set out in the judgment of the High Court reinforces this contention and that, therefore, we should affirm the High Court's judgment and dismiss these appeals.
9. We are of the opinion that in the circumstances of the case the judgment of the High Court should be set aside and the matter remanded to the High Court for fresh consideration having regard to the facts of the case and the effect of the amendment of the statute by Act 103 of 1976. We say this because the writ petitions were disposed of by the High Court on the short ground that the assessee was only an unregistered dealer and that, therefore, the proviso was not attracted to the case. Because of this approach, the High Court had no occasion to consider the facts of the case, to examine the nature of the assessee's business and to find out whether there were any subsequent sales effected by the assessee which would become chargeable under the proviso to Section 9(1). It is true that the assessee also took a contention in the writ petition that the proviso was not attracted to the case (vide para 11 of the writ petition). We, however, find that the respondents in their short counter-affidavit had controverted this allegation. Para 11 of the counter-affidavit filed on behalf of the Sales Tax Officer is relevant and be set out:
“11. That in reply to paras 11 and 12 of the writ petition the deponent is advised to state that the petitioner, having endorsed the railway receipt in favour of his buyers while the goods were in movement from one State to another, had made subsequent sale and was liable to pay central sales tax on such inter-State sales and the deponent had assessed the petitioner correctly under the provision of Section 9(1) read with proviso to that section of the Act.”
From what has been stated above, it would be clear that this aspect of the issue between the parties was not gone into by the High Court in the view that it took that the proviso was only applicable in the case of registered dealers. Now that statute has been amended with full retrospective effect to include the case of unregistered dealers as well, it is necessary to examine the facts of the case and examine whether the provisions of the new proviso are applicable thereto. We, therefore, set aside the judgment of the High Court and remand the matter to the High Court for fresh disposal of the writ petitions in the light of the above discussion and in accordance with law.
10. We would like to add that, in view of the amendment to the statute, both parties should be allowed liberty to place affidavits and counter-affidavits setting out the correct factual position and also their respective contentions before the matter is disposed of afresh.
11. The appeals are allowed accordingly. There will be no order as to costs.
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