JUDGMENT

(Delivered by Satyanarayana Rao, J.)

This is a batch of petitions under the Sales-Tax Act, which are given the appellation “tax on tax” cases, which expression is suggestive of the point involved in the cases.

The question raised is: whether the amounts collected by the registered dealer from the consumer by way of tax and paid over to the Government should be included in the turnover of the registered dealer as part of the sale price of the goods sold. The facts in C.R.P No. 1413 of 1952 may be taken as typical of the facts in the other cases.

The assessee in the case is one Krishnaswami Mudaliar and Sons dealers in timber and piece-goods at Vellore. His turnover was assessed at Rs. 27,38,901-1-10 for the assessment year 1948-1949. The assessee objected to the inclusion of a sum of Rs. 39,759-13-1 in the turnover of his business as it represents the amount of tax which he collected from the consumers and paid over to Government. The decision of the department was against the assessee; he succeeded in convincing the Tribunal that his claim was well-founded. The Government have filed these petitions against the orders of the Tribunal.

Under the Madras General Sales-tax Act, a registered dealer is empowered to collect any amount by way of tax leviable under this Act from the consumer, and he has to pay all the amounts so collected by him, if they are in excess of the tax, if any, paid by him, for the period during which the collections were made, to the Government; if he defaults in paying such amount, the amount could be recovered by the Government from the registered dealer as if they were arrears of land revenue (vide S. 8-B) of the Act. Under S. 15 of the Act, Cl. (f), a person, who collects any amount by way of tax under the Act in contravention of the provisions of S. 8. B, Sub-S. (1) or fails to pay the amount specified in S. 8-B, Sub-S. (2) within the prescribed time, is liable for conviction by a Magistrate, and the Magistrate has to specify in the order the tax which the person convicted has failed or evaded to pay or has wrongfully collected which amount is recoverable from him as fine. In view of the above penal provisions contained in S. 15 of the Act, it follows that a dealer who has not registered himself under the provisions of the Act is not entitled to collect any amount by way of tax from the consumer under the colour of the Act, while a registered dealer is entitled to pass on the tax levied on him to the consumer as he is entitled to collect it from the consumer. If, however, the unregistered dealer, without purporting to act under colour of the Act, makes it part of his bargain with the consumer that he should pay not only the sale price agreed upon between the parties but also in addition to it the tax which the dealer could be called upon to pay in respect of such transaction, the only authority in that event for the unregistered dealer to add the tax to the pries is that he thereby makes it part of the sale price for which the goods were agreed to be sold. In such an event, undoubtedly, it would be open to the purchaser, that is the consumer, either to accept the bargain in the manner stipulated by the unregistered dealer, or to refuse to accept the bargain. In cases in which an unregistered dealer adds to the sale price, the amount equal to the tax which he would be liable to pay to the Government it would undoubtedly be part of the sale price as it is part of the bargain. The question in these cases is “Does the same hold good in the case of a registered dealer?” Unfortunately, under the Act, the power and authority of the registered dealer to collect the tax from the consumer is only implied in S. 8-B, though it is made explicit in the Turnover and Assessment Rules, R. 5-A(7). It is a somewhat curious piece of drafting that the positive authority to collect the tax should have been relegated to the Rules, while the prohibition is made part of the Act itself. Under S. 8-B(1), the amount that the registered dealer is empowered to collect is described as “amount by way of tax”, and what he has to pay to the Government is also described in S. 8-B(2) as the amount by way of tax collected under the Act. The statutory authority conferred upon the registered dealer allow him to collect it only as tax. But the argument on which the Government rests its case is that whatever the consumer pays to the dealer should be treated as part of the purchase price, and that, therefore, it becomes part of the turnover. The definition of “sale” in the Act is:

“Every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration.”

The payment of the tax by the consumer is not under the Act a part of the bargain of sale and is outside it by reason of the provision contained in S. 8-B of the Act. When the Legislature itself describes the nature of the collection which is permitted to be made by a registered dealer as a tax, and the amount which he is permitted to collect is also determined in the same manner as tax which he has to pay on his turnover, it is impossible to treat such a collection as part of the purchase price. The fact that, if there is default in paying the amount to the Government, it could be collected as arrears of land revenue, and that he is also liable to prosecution under S. 15 of the Act, undoubtedly would show that the payment is not part of the purchase price but retains its character as tax. The rules relating to the turnover and assessment make the position clear. Under the Act, (S. 3) which is the charging section, Sub-Cl. (4) provides that the turnover has to be determined in accordance with such rules as may be prescribed, and under the rule-making power vested in the State, under S. 19 of the Act, the turnover and assessment rules were made. R. 4 provides that the gross turnover of a dealer for the purposes of the rules is the amount for which goods are sold by the dealer. Provision is made in R. 5 for certain deductions, and the mode or manner in which the tax to be levied has to be arrived at. The object of these rules is assess the net turnover on which the tax is to be levied under the charging section. It is therefore clear that under the charging section, tax is to be paid on the turnover which is assessed according to the Rules. R. 11 requires that every dealer should submit a return under R. 6 every year to the assessing authority in Form A in which he has to show the actual gross and net turnover for the preceding year and the amounts by way of tax or taxes actually collected during that year. In Form A columns 1 to 10 relate to the gross turnover and the deductions to be made from the gross turnover; column 10 requires the net turnover liable to tax to be shown. In column 11 the amount actually collected by way of tax or taxes under S. 8-B has to be shown. The scheme, therefore, clearly indicates and brings out the distinction, that, while under S. 8-B what the registered dealer is entitled to collect is only the tax leviable under the Act, under S. 3 the tax is assessed on the turnover. Having regard to the scheme of the Act, therefore, and the Rules relating to the turnover and assessment, it is impossible to treat the tax collected by the registered dealer as part of the purchase price.

Reliance was placed by the learned Government Pleader upon a decision of the Calcutta High Court in what is known as the Bata Shoe Case, Bata Shoe Co. Ltd. v. Board of Revenue West Bengal(1). Under the Bengal Act, unlike the Madras Act, there is no provision corresponding to S. 8-B of the Madras Act permitting a registered dealer to collect the tax from the consumer. One has to remember that the policy underlying the Madras Act is that, though a registered dealer is liable directly to the Government to pay the tax on the turnover, the registered dealer himself is permitted to pass on the tax to the consumer, and he is authorised and permitted to collect the tax from the consumer. As observed by the Supreme Court in one of the recent cases, in State of Bombay v. United Motors Ltd., (2), the incidence of the sales tax is really directed against the consumer, and it is in substance a tax imposed on the goods on the occasion of the sale. Even in cases where there is no corresponding provision, as under the Bengal Act, it is common knowledge that a dealer usually collects the tax from the consumer; but it is treated as part of the purchase price, as the dealer has no right to collect the tax unless he makes it part of the bargain, As observed by Harries C.J at p. 197 after quoting the definition of “sale price” as contained in the Bengal Act:

“What the seller receives as valuable consideration from the buyer for the article sold is undoubtedly the sale price………The sellers make out a bill showing what they describe as the price of the article and the amount of sales tax and the buyer has to pay the total amount.”

The real distinction is contained in the passage at the bottom of p. 197, where the learned Chief Justice points out the distinction between a case, where the seller, that is, the dealer, was authorised by law to collect the tax, and a case where the seller was not so authorised: for the learned Chief Justice observes:

“If the dealers were authorised to collect the sales tax from the purchasers, then the sale price would clearly be the amount paid less the sales tax; but the total amount paid by the buyer in the present case must be the sale price. It is a consideration payable in respect of article sold. The total amount paid cannot be split up. As I have said, the purchaser is not liable to pay sales tax and the same cannot be levied upon him by the dealer. What actually happens is that the dealer in passing on his liability to the purchaser, increases the price of the article by the amount payable as tax on such a sale. He does not levy a tax on the purchaser or collect as tax from the purchaser. What he does is to increase the price of the article so as to ensure that he, the dealer, will not be the loser by having to pay sales tax levied upon him by the Act. Once it is held that the total amount which the purchaser pays is the sale price under the Act, then quite clearly the dealers cannot deduct from the aggregate of the amount received, the amount representing the sales tax payable. The dealers must include all they have received as consideration for the sales in computing the actual gross turnover.”

In our opinion, if we may say so with respect, this passage from the judgment of the learned Chief Justice clearly brings out the distinction between cases where the dealer is not authorised by law to collect the tax but all the same adds it to the sale price in the bill of sale and collects it from the customer and cases where the dealer is so authorised. In the former case it is undoubtedly part of the purchase price, as all the collections made by the dealer from the purchaser must be treated as constituting part of the sale price. If, however, under law the dealer is empowered to pass on the sales tax to the purchasers, to collect it and pay it to the Government, what he is permitted to so collect under law would continue to retain its character as tax and it would never form part of the purchase price. The decision in the Bata Shoe Case was followed by the Patna Court in Kaniram Janki v. The State of Bihar and by the Madhya Pradesh State in Jethalal Virajlal v. State of Madhya Pradesh(3). The provisions of the Acts in those two States were also similar and were analogous to the provisions of the Bengal Act, and therefore the principles of these decisions, will not help the learned Government Pleader and support his argument.

The case more in point, in our opinion, is the decision of the Travancore High Court in Velayudhan v. Agricultural Income-tax and Sales Tax Officer(4), where Subramania Aiyar J. deals with an Act which contains provisions analogous to those of the Madras Act. It is no doubt true that in that State there is a specific rule directing the exclusion of the tax collected from the turnover. But in our opinion that does not make any difference: and the learned Judge does not rest his judgment on that single circumstance. The learned Judge examined the position and arrived at the conclusion that the tax collected does not constitute part of the sale price. At page 348 this is what the learned Judge says:

“The sales tax collected by the petitioner is immune from the levy of any sales tax as the collection was made by him for and on behalf of the State and his obligation was to make it over to the State on whose behalf he made the collection. No part of the money collected by way of sales tax belongs to him. It cannot be said under S. 2, Cl. (k), Explanation (ii), that the sales tax is the sum charged for anything done by the, dealer in respect of the goods sold.

The dealer did nothing to the goods sold in eider to enable him to earn the tax that is levied upon the sale. It is an obligation imposed by the State upon transactions of sale which liability is to be borne by the purchaser and the amount is to be collected by the seller not because he is entitled to it in his capacity as seller but because an obligation has been enjoined upon him to make the collection under the statute. In no view of the matter can it be said that the dealer is liable to further sales tax upon the collections made.”

With great respect to the learned Judge we think that the position has been correctly described in the passage above extracted. We think, therefore, that the view taken by the Tribunal, having regard to the clear provisions of the Act and the Rules framed thereunder, that the tax collected by the registered dealer under S. 8-B of the Act does not constitute part of the turnover and is not liable to be taxed again, is correct. Each of these applications must be dismissed with costs, Rs. 250 in each.

V.C.S