Madras High Court
Bava Prima Tannery vs The State Of Tamil Nadu on 29 November, 1979
JUDGMENT M.M. Ismail, C.J.
1. These revision petitions are filed against the order of the Sales Tax Appellate Tribunal, Main Bench, Madras, dated 28th November, 1978, in Tribunal Appeals Nos. 642, 643 and 646 of 1978. Since they raise a common question, they are dealt with and disposed of by this common judgment. Most of the facts are not in controversy, and for the purpose of determining the controversy raised, it is not necessary to go into the details of the facts relating to each of the assessees.
2. The Parliament passed the Central Sales Tax Act, 1956, to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce, outside a State or in the course of import into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. Section 15 of this Act provided :
Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely :-
(a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage ;
(b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State.
3. Section 14 of the abovesaid Act declared the goods enumerated therein as of special importance in inter-State trade or commerce. Item (iii) in that section referred "hides and skins, whether in a raw or dressed state.
4. The Tamil Nadu General Sales Tax Act, 1959, had received the assent of the Governor on 11th March, 1959, and was published in the Fort St. George Gazette on 18th March, 1959, and naturally it took those restrictions imposed by the Central Government into account in formulating the taxing provisions contained therein. Section 3 of the Tamil Nadu General Sales Tax Act, 1959, deals with levy of taxes on sales or purchases of goods. Section 4, which is relevant, reads as follows:
4. Tax in respect of declared goods.-Notwithstanding anything contained in Section 3, the tax under this Act shall be payable by a dealer on the sale or purchase inside the State of declared goods at the rate and only at the point specified against each in the Second Schedule on the turnover in such goods in each year, whatever be the quantum of turnover in that year.
5. Thus, it will be seen that this Section 4 was giving effect to Section 15 of the Central Sales Tax Act, 1956, referred to already. Section 5 of the Tamil Nadu General Sales Tax Act deals with tax on goods purchased by dealers registered under Central Act 74 of 1956. As we have seen, Section 4 of the Tamil Nadu Act referred to the Second Schedule to the Act. The entry with which we are concerned in the Second Schedule is entry 7 dealing with hides and skins and the said entry reads as follows :
"Serial No. Description of the Point of Rate of
goods levy tax
(per cent)
7(a) Raw hides and skins At the point of last pur-
chase in the State. 3
(b) Dressed hides and skins At the point of first sale
which were not sub- in the State." 11/2"
jected to tax under this
Act as raw hides and skins)
6. Consistent with the provisions contained in Section 4 read with entry 7 of the Second Schedule to the Act, the Tamil Nadu General Sales Tax Rules, 1959, also made certain specific provisions. Sub-rule (1) of rule 5 states :
Save as provided in Sub-rule (2), the total turnover of a dealer for the purposes of these rules shall be the amount for which goods are sold by the dealer."
7. Sub-rule (2) of rule 5 says :
In the case of the undermentioned goods the total turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer....
(b) raw hides and skins....
8. Thus, it will be seen that a combined effect of Section 4, entry 7 to the Second Schedule and rule 5(1) and (2) of the Rules will lead to the inference that raw hides and skins purchased in the State will bear tax at 3 per cent on the purchase turnover and the sale of dressed hides and skins in this State will bear 1 1/2 per cent on the sales turnover. In the cases with which we are concerned, the dealers have purchased raw hides and skins within the State, had tanned the same and sold them as dressed hides and skins within the State. The question for consideration is with reference to such transactions of the dealers what is the manner or method of assessment. To put it in other words, are they liable to be taxed on the purchase turnover of the raw hides and skins and again on the sales turnover of the dressed hides and skins with the qualification that when the dressed hides and skins sold by the assessee had suffered tax in its raw state under entry 7(a), they shall not be again taxed at the point of sale or it is only the sales turnover of the dressed hides and skins which should be brought to tax and if it is found that the entirety of the purchase of raw hides and skins within the State had not been tanned and sold, to levy tax on the untanned part of the raw hides and skins purchased in the State on the purchase turnover under entry 7(a) ? The case of the assessees is that the latter is the method for assessment contemplated by the Act as held by a decision of this Court, while the case of the department is that the former is the method of assessment contemplated by the Act as explained by a judgment of the Supreme Court.
9. The decision relied on by the assessees is a decision of this Court reported in L. M. S. Sadak Thamby & Co., Madras-1 v. Appellate Assistant Commissioner of Commercial Taxes I, Madms-13 [1969] 24 S.T.C. 468. In this judgment, after an elaborate consideration of the provisions of the Act, the Rules made thereunder and the earlier decisions, the Bench observed as follows at page 479 :
Such an analysis as above on the contentions raised leads on to a practical aspect. Dealers in hides arid skins have, like others, the option to file monthly returns and such a method of self-assessment though acted upon is obviously an interim measure. The revenue ultimately is obliged and has indeed the right at the end of the accounting year to finally bring to tax the transactions of a particular dealer concerned in a manner known to law. If at that particular point of time the dealer establishes that the raw hides and skins purchased by him during the accounting year were dressed and sold by him before the ending of the accounting year, then the officer has no option except to tax the dressed skins on the sale point. Undue reliance cannot be placed upon the monthly returns, though they are operative as self-assessments in which the dealer might have disclosed the assessable turnover relating to the purchase of raw hides, but might also establish that some of such raw hides purchased were sold during the year as tanned hides and skins. If the dealer is able to prove the above fact with reference to his account books, then the assessing officer is obliged to revise the assessment and bring to tax such of those raw hides and skins as are still in stock as such with the dealer under item 7(a) and treat the rest of the stock converted into dressed skins and sold during the year under item 7(b). This is of course subject to the limitation that no purchase tax was paid in the State on raw hides and skins over sales of such goods after conversion into dressed goods.
10. It is on this passage reliance has been placed before the Tribunal as well as before us by the assessees. The passage itself, though supports the contention of the assessees, is not clear in one respect. In one portion of the abovesaid observation it is stated:
...then the officer has no option except to tax the dressed skins on the sale point.
11. In another portion of the same passage it is stated :
If the dealer is able to prove the above fact with reference to his account books, then the assessing officer is obliged to revise the assessment and bring to tax such of those raw hides and skins as are still in stock as such with the dealer under item 7(a) and treat the rest of the stock converted into dressed skins and sold during the year under item 7(b).
12. The revision that is referred to is the revision of the provisional assessment made on the basis of the monthly returns. The subsequent passage which we have extracted will give an indication that the officer will have to find out at the end of the year what is the stock of raw hides and skins purchased and not converted into tanned hides and skins and tax the same under entry 7(a) and tax the rest of the purchase under entry 7(b). We are of the opinion that there is some slight inconsistency between the earlier passage where it was stated that the officer has no option except to tax the dressed skins on the sale point, and the subsequent passage. However, that does not materially alter the situation. It is not in dispute that prior to the decision of this Court in L.M.S. Sadak Thamby & Co., Madras-1 v. Appellate Assistant Commissioner of Commercial Taxes I, Madras-13 [1969] 24 S.T.C. 468, referred to above, the department has been following the procedure of first levying the tax on the purchase turnover of raw hides and skins in this State and thereafter levying tax on the sales turnover of dressed hides and skins effected in the State subject to the qualification that that portion of the dressed hides and skins which had borne tax in the raw state under entry 7(a) on the purchase turnover will not be again liable to be taxed on the sales turnover and after the decision of this Court referred to above, the practice was changed and that that practice was what was understood to have been the principles laid down by this Court in the decision referred to above. :
13. The contention of the revenue which found favour with the Tribunal was that a subsequent decision of the Supreme Court in V. Guruviah Naidu and Sons v. State of Tamil Nadu [1976] 38 S.T.C. 565 (S.C.) must be deemed to have overruled the decision of this Court already referred to because it has given a categorical construction as to the manner in which the levy has to be made with reference to entries 7(a) and 7(b) in the Second Schedule to the Act referred to above. In that case, the appellants were dealers in hides and skins. They purchased raw hides and skins locally as well as in the course of inter-State trade and commerce, converted them into dressed hides and skins and sold them either locally or in the course of export. The matter related to the assessment year 1968-69 and the dispute between the parties arose because of the inclusion in the turnover of the sale and purchase price of some of the above goods. The assessees in that case by means of writ petitions challenged the validity of items 7(a) and 7(b) of the Second Schedule to the State Act and the High Court repelled the attack on the validity of those items and dismissed the writ petitions, and it was that matter which was taken up to the Supreme Court. The Supreme Court while dealing with the controversy raised before it referred to two earlier decisions of its own, namely, Firm A. T.B. Mehtab Majid & Co. v. State of Madras [1963] 14 S.T.C. 355 (S.C.) and Hajee Abdul Shukoor & Co. v. State of Madras [1964] 15 S.T.C. 719 (S.C.) and distinguished the basis on which those decisions were rendered and ultimately held as follows :
Article 304(a) does not prevent levy of tax on goods : what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free flow of inter-State trade and commerce. The question as to when the levy of tax would constitute discrimination would depend upon a Variety of factors including the rate of tax and the item of goods in respect of the sales of which it is levied. The scheme of items 7(a) and 7(b) of the Second Schedule to the State Act is that in the case of raw hides and skins which are purchased locally in the State," the levy of tax would be at the rate of 3 per cent at the point of last purchase in the State. When those locally purchased raw hides and skins are tanned and are sold locally as dressed hides and skins, no levy would be made on such sales as those hides and skins have already been subjected to local tax at the rate of 3 per cent when they were purchased in raw form. As against that, in the case of hides and skins which have been imported from other States in raw form and are thereafter tanned and then sold inside the State as dressed hides and skins, the levy of tax is at the rate of If per cent at the point of first sale in the State of the dressed hides and skins. This levy cannot be considered to be discriminatory as it takes into account the higher price of dressed hides and skins compared to the price of raw hides and skins. It also further takes note of the fact that no tax under the State Act has been paid in respect of those hides and skins. The legislature, it seems, calculated the price of hides and skins in dressed condition to be double the price of such hides and skins in raw state. To obviate and prevent any discrimination or differential treatment in the matter of levy of tax, the legislature therefore prescribed a rate of tax for sale of dressed hides and skins which was half of that levied under item 7(a) in respect of raw hides and skins.
14. Thus, it will be seen that the above observation of the Supreme Court is in relation to the entire scheme of entry 7(a) and entry 7(b) and, therefore, will constitute a complete code on the scope of entries 7(a) and 7(b) of the Second Schedule to the Act. If this observation of the Supreme Court is taken into account, it will follow that the purchase of raw hides and skins in the State attracts levy under entry 7(a) on the purchase turnover subject to the condition that when the same raw hides and skins are tanned in the State and sold during the accounting year as dressed hides and skins, the same will not be taxable under entry 7(b). This observation of the Supreme Court is so specific that there is no room for any doubt as to the actual scope of entries 7(a) and 7(b) and how they have to be applied in practice. In view of this, we are clearly of the opinion that the Tribunal was right in holding that the decision of this Court in L.M.S. Sadak Thamby & Co., Madras-1 v. Appellate Assistant Commissioner of Commercial Taxes I, Madras-13 [1969] 24 S.T.C. 468, must be deemed to have been overruled by the Supreme Court by its decision in the Guruviah Naidu's case [1976] 38 S.T.C. 565 (S.C.). If so, there is no 'controversy that the order of the Tribunal on merits is correct. Under these circumstances, these tax revision petitions fail and are dismissed. There will be no order as to costs.