Calcutta High Court
Jardine Henderson Ltd. vs The State Trading Corporation Of India ... on 18 April, 1988
Equivalent citations: (1988)2CALLT377(HC)
JUDGMENT M.R. Mallick, J.
1. This is a suit by Jardine Henderson Ltd. for recovery of Rs. 79,071.62 from the defendant.
2. The plaintiff's claim arises in the following circumstances. The plaintiff who is a manufacturer of products including B. Twills entered into several contracts with the defendant from the beginning of 1st April, 1969 ending with 31st March, 1970 whereby and whereunder the plaintiff agreed to sell the defendant and the defendant agreed to buy from the plaintiff diverse quantities of ,B. Twills. One of the common terms and/or conditions of the said contracts was that sales tax if applicable would be under the defendant's account. The defendant purchased the said goods covered by the said contract for the purpose of exporting and in fact exported the same out of the territory of India. At all relevant point of time the plaintiff reasonably believed that the sales of the said goods covered by the said contracts took place in, the course of export out of the territory of India within the meaning of Section 5(2) (a) (v) of the Bengal Finance (Sales Tax) Act 1941 and the Sales Tax under the Act would not be applicable in respect, of the said sales and as such did not include such Sales Tax in the bills and/or invoices submitted to the defendant in respect of the said sales. By and under Assessment Order, dated 22nd February, 1974 passed by the Commercial Tax Officer, Lyons Range, Calcutta in the relevant provisions of the Act in respect of the said Financial year, the taxable turn over of the plaintiff was arrived at after deducting therefrom the said sales under and/or in terms of Section 5(2) (a) (v) of the Act. However, the Supreme Court of India by its judgment, dated 16th April, 1975 delivered in, the case of Md. Sirajuddin v. State of Orissa held that where the mineral ore had been sold by the appellant namely, Md. Sirajuddin to the defendant State Trading Corporation of India Ltd. and that the defendant in its turn entered into similar contracts with the foreign buyers for sale of the identical goods purchased by it from Md. Sirajuddin, the sales of Md. Sirajuddin to the defendant were exigible to tax because they were not sales in the course of export. After this judgment had been delivered the Assistant Commissioner, Commercial Taxes, Chowringhee Circle by his Memo No. 3660, dated 16th June 1976 initiated a suo rnoto Revision Case No. 36 of 1976-77 alleging that an amount of Rs. 1,24,66,655.54 has been wrongfully allowed under Section 5(2) (a) (v) of the Act and it was necessary to revise the said assessment order. After receiving the above Memo, the plaintiff by its letter, dated 12th July, 1976 informed the defendant about the receipt of the said Memo and pointed out to the defendant as per the terms of the said contract with the defendant the amount claimed in the said Memo, would become payable by the defendant to the plaintiff and requested the. defendant for arranging the issue of relevant Sales Tax Declaration Forms to the plaintiff. The defendant by his letter, dated 30th July, 1976 requested the plaintiff to challenge the re-opening made by the said assessment order but promised to furnish the appropriate declaration forms. Thereafter the plaintiff again made further demands for the supply of declaration forms in writing and the defendant by its letter, dated 22nd February, 1977 again promised to furnish the relevant declaration forms as soon as it obtained the adequate quantity of forms from, the Sales Tax Authorities. Thereafter the defendant duly submitted the relevant declaration forms to the plaintiff. On or about 23rd December, 1977 the plaintiff received the Memo No. 7842, dated 13th December, 1977 from the Assistant Commissioner informing the plaintiff that the said Assessment Order, dated 22nd February, 1974 had been revised by the Assistant Commissioner by the Order, dated 2.1st November, 1977.
3. On or about 19th April, 1978 the plaintiff applied for a certified copy of the Order, dated 21st November, 1977 and came to know about the relevant Order which has been set out in paragraph 17 of the plaint. In the premises aforesaid, the Sales Tax became applicable to the said sales that had taken place with the defendant became liable to pay the same to the plaintiff under the terms of the said contracts. The plaintiff thereafter duly submitted a bill for a sum of Rs. 63,187.83 being half percent of Rs. 1,24,66,655.54 to the defendant. On or about the 21st October, 1978 the plaintiff received a revised notice of assessment from the concerned authorities whereby the plaintiff was directed to pay a sum of Rs. 62,021.62 failing which it was threatened that the said amount would be recovered from the plaintiff as an arrear of Land Revenue as sales penalty and on 12th March, 1979 the plaintiff was constrained to pay and paid the said sum of Rs. 62,021.62 as per the demand contained in the said revised notice of assessment. The plaintiff is entitled to recover the said sum from the defendant and the defendant is bound to pay the same to the plaintiff. But the defendant purported to deny its liability for the said sum and has failed and/or neglected to pay the same. In the circumstances the plaintiff is entitled to claim and claims compensation amounting to Rs. 17,650 on account of its inability to utilise the said sum of Rs. 62,021.62 from the date of payment namely, 12th March, 1979 until the date of institution of the Suit, i.e., the interest which is the plaintiff could have earned in the said sum calculated at the rate of. 15% per annum. Therefore, the plaintiff has filed the suit for recovery of the sum of Rs. 79,071.62.
4. The defendant in the written statement has denied the plaintiff's claims. It is submitted that the sales by the plaintiff and the purchase by the defendant of the goods under the contracts in question occasioned the export of the said goods covered by such contracts and consequently to Sales Tax was or is chargeable, that the Supremt Court judgment in question have no manner of application to the facts and circumstances of this case, that there is no occasion to revise the Assessment Order and the plaintiff failed to take appropriate steps for challenging the initiation of the said revision case, that the Sales Tax Declaration Forms were furnished by the defendant without prejudice to its rights and contentions that no Sales Tax was at all payable in respect of the transactions had between the parties therein, that the plaintiff not having contested the suo moto revision and by conceding the case before the Sales Tax Authorities cannot by its own acts and omission claim Sales Tax from the defendant as the plaintiff did not act bona fide in the matter of conducting the purported revision case that the Order, dated 21st November, 1977 is not at all binding on the defendant and the defendant cannot be liable anything under or in respect of the said Order, and that the plaintiff is not, therefore, entitled to recover a sum of Rs. 62,021.62 and the compensation as claimed in this Suit.
5. Prom the pleading the following issues have been framed :
ISSUES :
1. Were the goods sold by the plaintiff to the defendant exigible to Sales Tax and was Section 5(2) (a) (v) of the Bengal Finance (Sales Tax) Act, 1941 applicable to the transaction ?
2. Did the Assistant Commissioner, Commercial Taxes, have any authority or jurisdiction to initiate suo moto proceedings for revision or make a fresh assessment in respect of the transaction covered by the contract ?
3. Did the decision of the Supreme Court in the case Md. Serajuddin v. State of Orissa reported in AIR 1975 SC 1964 apply in case of concluded transaction and assessment ?
4. Did the plaintiff take adequate steps to dispute its liability to pay Sales Tax in regard to the sale in question ?
5. Is the plaintiff entitled to raise a demand on account of Sales Tax after the contract had been worked out and there had been a complete accord and satisfaction between the parties ?
6. Is the Order, dated November 21, 1977 binding on the defendant and can the defendant be held liable for anything under and in respect of the said order ?
7. Is the plaintiff entitled to claim any interest or compensation from the defendant in respect of the said transaction ?
8. To what relief, if any, is the plaintiff entitled ?
6. ISSUE NOS. 1, 2, 3 and 4 : These issues being inter connected are taken up together for reasons of convenience. It is an admitted position that in respect of the sales transactions, of B. Twills that took place in between the plaintiff and the defendant for the sum of Rs. 1,24,66,655.54 there was initially no assessment of sales tax and the said amount was admittedly allowed exemption under Section 5(2) (a) (v) of the Bengal Finance (Sales Tax) Act 1941 and the Assessment Order, dated 22nd February, 1974 of the Commercial Tax Officer, Lyons Range, Calcutta in respect of the financial Year in question the taxable turn over of the plaintiff was arrived at after deducting therefrom the above sales that took place between the plaintiff and the defendant under the above Section. After the decision of Md. Sirajuddin v. State of Orissa reported in AIR 1975 SC page 1964, the said Assessment. Order was revised on issuing proper notice to the plaintiff and by the Order, dated 21st November, 1977 passed by the Assistant Commissioner, Commercial Taxes, Chowringhee Circle the original Assessment Order was revised and Sales Tax was imposed at i% as in the meantime the defendant furnished to the plaintiff all the declaration forms and the plaintiff in its turn submitted them before the Sales Tax Authority. On receiving the demand notice from the Sales Tax Authority for payment, of Sales Tax of Rs. 62,021.62 the plaintiff deposited the said Sales Tax under the threat of legal proceeding. On behalf of the defendant it could not be submitted that the decision of the said revisional Authority was per se illegal. The Sales . Tax Authority has under the Act necessary power of revision. The revision was necessitated because of the judgment of the Supreme Court in respect of the sale of the same defendant State Trading Corporation from Md. Sirajuddin regarding the mineral ore. - The Supreme Court's decision has been reported in AIR 1975 SC page 1964. This is also a purchase by the State Trading Corporation of B. Twills from the plaintiff and thereafter the sale by the State Trading Corporation to the foreign buyers. I am unable to find any distinguishing feature in this case to come to the finding that the revisional order was per se illegal.
7. It is urged on behalf of the defendant that the plaintiff had not seriously challenged the suo moto revision proceeding and if they could have challenged it the revised Assessment Order would not have been passed. I am of the view that when the order of the Assistant Commissioner does not appear to be per se illegal and if the plaintiff accepted that Order and made the payment there does not appear to be any mala fide motive on the part of the plaintiff to saddle the defendant with an illegal liability of Sales Tax. Therefore, all these issues are disposed of accordingly in favour of the plaintiff.
8. ISSUE NO. 6: The defendant in the written statement has urged that the Order, dated 21st.. November, 1977 is not binding upon the defendant and the defendant cannot hold liable for anything under and in support of the said Order.
9. On behalf of the plaintiff it is urged that the plaintiff claims recovery of the Sales Tax from the defendant in view of the specific provision made in Section 64A of the Sale of Goods Act 1930 and consequently whether the defendant is bound by the Order passed by the Assistant Commissioner or not is not a material consideration in this case. I am of the view that the plaintiff has founded his claim in the suit for recovery of arrears of Sales Tax and the compensation thereon, not on the ground that the defendant is bound by the Order, dated 21st November, 1977 but because under the provision of Section 64A of the Sale of Goods Act, 1930 the amount of Sales Tax paid by the plaintiff on account of sales in question is per se recoverable from the defendant in view of the mandate of Section 64A of the Sale of Goods Act.
10. I am of the view that the contention of the plaintiff in this respect is quite proper. Therefore, whether the defendant is bound by the order or not is related to the question as to whether he is liable to pay the amount in view of Section 64A of the Sales of Goods Act. I would now take up that issue. .The issue in question is disposed of accordingly.
11. ISSUE NO. 5 : It is submitted that the plaintiff is not entitled to raise any demand on account of Sales Tax under Section 64A of the Sales of Goods Act, after the contract of sale has been worked out and there had been any complete accord and satisfaction between the parties. It is urged on behalf of the defendant that Section 64A of Sale of Goods Act, 1930 does not provide for an unlimited and unfettered liability for the payment of Sales Tax by the buyer and that such liability continues so long as the contract of sale has not been completely worked out by due performance namely, by the purchase of the goods and payment of the price. In support a decision of the Division Bench of Madras High Court N. Sundaresivaran v. Sri Krishna Refineries has been cited. My attention has been drawn to page 116 para. 12 of the decision of the Madras High Court in which the Division Bench has observed as follows :
"In contracts of sale of goods, if during the working or performance of the same, Customs or Excise Duty or Tax on the sale or purchase of goods is imposed by any law for the time being in force, then, if such an imposition takes effect, Section. 64A(a) provides that the seller may add so much of such increase to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax and he shall be entitled to be paid and to sue for and recover such addition. This statutory entitlement vested in the seller to claim the increase in excise duty, as this case, in case such a duty takes effect during the course of the working of the contract is, in our view, a right which is per se enforceable.
12. Mr. Sudipta Sarkar learned Advocate appearing for the defendant lays stress on the observations of the Rama Prasad Rao, J, reported in page 116 that in contracts" of sale of goods if during the working or performance of the same Customs, Excise Duty or Tax on the sale or purchase of goods is imposed by any law, then if some imposition, takes effect Section 64A will be attracted. He, therefore, submits that the liability of the buyer continues only during the working or performance of the contract of sale.
Section 64A of Sale of Goods Act reads thus-
"64.A. (1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulations to the payment of tax where tax was not chargeable at the time of the making of the contract or for the sale or purchase of such goods tax paid where tax was chargeable at that time :
(a) If such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition ; and
(b) If such decease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, the buyer may deduct so much from the contract price as will be equivalent to the decease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction.
2. The provisions of sub-section (1) apply to the following namely :
(a) any duty of customs or excise on goods,
(b) any tax on the sale or purchase of a goods."
13. I am of the view that regard being had the language used in Section 64A of the Sale of Goods Act such a restricted nature of liability of the buyer is not contemplated. In the Madras case the learned judges were deciding a case in which the increase of price of goods was demanded by seller during the working or performance of the sales contract. As the buyer refused to pay the excise duty imposed on the goods the buyer refused to complete the sale transaction. The seller filed the Suit for damages on the ground that the seller had failed to perform his part of the contract and was liable for damages. The Division Bench held that the seller was equally entitled to add the amount of Excise Duty to the price and because of the failure of the buyer to pay the price together with the Excise Duty the contract of sale could not be finalised. In the circumstances, the Division Bench refused to grant damage to the buyer for the alleged non-performance of sale by the seller. In the nature of such facts and circumstances such a general observation was made by the learned Judge while describing the import of Section 64A of the Sale of Goods Act. But Section 64A does not make any such limitation regarding its applicability. If the sales tax is imposed by the Sales Tax Authority for the sale of goods for which the price has already been paid on the belief that no Sales Tax was due and was accepted by the seller then if the seller cannot recover such Sales Tax imposed on such sale subsequent to the payment of price by the buyer then the provision of Section 64A would definitely have very limited application which does not appear to be the law on the face of the clear provision of Section 64A. The Division Bench of Madras High Court has, however, taken note that the right of the seller under Section 64A is 'per se enforceable. In this particular case the imposition was made long after the completion of sale by the Sales Tax Authority by revising the original Assessment Order and when there is nothing to say that there was any agreement to the effect that the buyer would not be liable for Sales Tax if subsequently imposed on such sale, then the buyer cannot refuse to pay the said Sales Tax which shall be deemed to be part and parcel of the contract for sale. If the sales tax is imposed, there could be no doubt that unless there is a contract to the contrary the buyer has to pay the Sales Tax. Therefore, I am unable to hold that the defendant can avoid the liability to pay the said Sale Tax. It is urged on behalf of the defendant that they submitted the Sales Tax Declaration Form without prejudice to their right. But when the defendant has the statutory liability in view of Section 64A, to pay the Sales Tax imposed on such sale by the Sales Tax Authority then the defendant cannot avoid the liability only because the Sales Tax Declaration Forms were submitted without prejudice. If the defendant had not furnished Sales Tax Declaration Forms, the Sales Tax would have been imposed at a higher rate and the defendant would have to pay such Sales Tax at a higher rate. Therefore, by submitting the Sales Tax Declaration Forms the defendant had been benefited ; otherwise their liability would have been higher. The issue under consideration is, therefore, answered in favour of the plaintiff.
14. ISSUE NO. 7 : The plaintiff has also claimed interest or compensation from the defendant on the amount of Sales Tax paid at the rate of 15%. I am of the view that the defendant had some genuine contentions to make and it is not a case in which the defendant has refused to pay the amount of Sales Tax on a frivolous ground. It was necessary for this Court to decide all the contentions of the defendant before the defendant can be saddled with the liability to pay the amount of Sales Tax paid by the plaintiff to the Sales Tax Authority in respect of the sale transaction in question. In the circumstances, I am unable to grant the plaintiff any amount by way of interest or compensation on the amount of Sales Tax paid.
15. ISSUE, NO. 8 : In the circumstances, the plaintiff's Suit is decreed in part. The plaintiff shall get Rs. 62,021.62 from the defendant with proportionate cost of the Suit. The decree shall, however, carry an interest of 6% per annum.