Karnataka High Court
Tata Oil Mills Company Limited vs The Assistant Commissioner Of ... on 17 December, 1985
Equivalent citations: [1986]62STC369(KAR)
ORDER Rajasekhara Murthy, J.
1. The petitioner, the Tata Oil Mills Company Limited, Bangalore, is common in these writ petitions. The petitioner is having its branch office in Bangalore for the purpose of marketing its products. The petitioner appointed Messrs. Gekayel Enterprises, Bangalore, as one of their commission agents under an agreement entered into between them. The sales were being effected by the agent to various dealers on wholesale basis and the sales tax was collected by the commission agent.
2. For the assessment periods 1st April, 1976, to 31st March, 19777, and 1st April, 1977, to 31st March, 1978, it was seen on verification by the department that tax for the two periods had not been paid by the Gekayel Enterprises. Therefore, a proposition notice in form No. 31-A was issued on 8th March, 1979, for the year ending 31st March, 1977, and on 17th December, 1981, for the year ending 31st March, 1978, produced as annexure B in each of the writ petitions. After hearing the representative of the petitioner-company the assessments for both the years were completed by the Assistant Commissioner of Commercial Taxes (Assessment) I, City Division, Bangalore.
3. It was contended by the petitioner-company before the assessing officer that the tax was being collected by their commission agent M/s. Gekayel Enterprises on the sales effected by them during the two periods and therefore Gekayel Enterprises should be assessed to sales tax and to collect the same from them.
4. This contention of the petitioner was rejected by the Assistant Commissioner and held that the petitioner being the principal was jointly liable and the assessment made against the petitioner-company (was) in accordance with law and was in conformity with the decision of this Court in State of Mysore v. F.D. Malladad and Bros. [1969] 23 STC 230.
5. Being aggrieved by the orders of the assessing officer, the petitioner has filed these petitions resisting the demands made against them for the two years in question.
6. It is argued by Sri Sarangan, learned counsel for the petitioner, that under section 11 of the Sales Tax Act, it is the agent that should be assessed to tax in respect of the sales effected by him on behalf of the principal. This argument is opposed to the scheme of the Sales Tax Act. The principal can be construed as an assessee for the purpose of the Act in respect of the transactions carried on by its agent.
7. Under the charging section 5 of the Act, tax is levied on the sale or purchase of goods. "Assessee" is defined under sub-section (e) of section 2 of the Act as a person by whom a tax is payable. "Dealer" is defined under section 2(k) of the Act as follows :
"2. (k) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration"
and includes :
"(iii) a commission agent, a broker or del credere agent or an auctioneer or any other mercantile agent by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal."
Under section 11 of the Act, an agent is made liable to pay tax in respect of sale or purchase made on behalf of any principal. Proviso to section 11(1) of the Act reads thus :
"Provided that the principal, shall not be assessed to tax on his turnover in respect of which, the agent is liable to tax or taxes under sub-section (1) and the burden of proving that the turnover has been effected through an agent liable to tax under the said sub-section, shall be on such principal."
It is clear from a reading of the proviso to section 11(1) that both the principal and agent are liable to be assessed under the Act and the liability of the agent and the principal is co-extensive.
8. Section 11 no doubt provides that if an agent has paid the tax, the principal shall not agent be taxed in respect of the same transaction. But, the burden of proving that the tax in respect of the transaction has been paid by the agent shall be on such principal.
9. Section 11 was amended by Act 23 of 1983 with effect from 18th November, 1983, and was substituted by the amending Act. The portion relevant for these cases is the proviso to the amended section 11(1). That proviso reads thus :
"Provided that the principal, shall not be assessed to tax on his turnover in respect of which, the agent is liable to tax or taxes under sub-section (1) and the burden of proving that the turnover has been effected through an agent liable to tax under the said sub-section, shall be on such principal."
Therefore, it is seen that no change is brought about in the section so far as the liability of the principal is concerned. In this context it may be useful to reproduce the Statement of Objects and Reasons while the Bill was introduced in the State Legislature.
"Under the existing provisions of the Bill, agent is taxed as qua agent and not as a dealer. The agent's liability is, therefore, co-extensive with that of his principal and if the principal cannot be taxed in respect of a transaction his agent also cannot be taxed. It is proposed to modify the applicability of law of agency to the assessments under the Bill by providing that the turnover effected by the agents, who is also a dealer under the Bill, shall be deemed to be his own turnover of the purposes of levying tax."
This is only clarificatory and does not introduce anything new as to the liability of the principal and the agent which is co-extensive under the Act.
The department has sought for reliance on a decision of this Court in state of Mysore v. F.D. Malladad and Bros. [1969] 23 STC 230. Dealing with the scope of section 11 their Lordships observed as follows :
"Section 5 which is the charging section makes every dealer liable for payment of the tax on his taxable turnover and there is nothing in the first proviso to section 11 which supports the view that an agent is exclusively liable to pay the tax. That proviso, it is clear, incorporates an enabling provision which makes the agent also liable to pay the tax. And that, that is so, is clear from the concluding part of the proviso which says that in a case where the agent has paid the tax the principal shall not again be taxed in respect of the same transaction. If the principal, as stated by the Tribunal, was not liable in a case where the business is carried on by an agent, it was unnecessary for that part of the proviso to exempt the principal from payment of the tax only if that part of the proviso to exempt the principal from payment of the tax only if that tax had already been paid by the agent. If there was no liability on the part of the principal, that exemption was scarcely necessary."
10. The contention advanced by the firm in that case was that since the firm carrying on its business through its agent, that part of the turnover done through the agent could not be taxed as turnover in the hands of the firm, and that the agent alone was liable to pay the tax. This contention was upheld by the Tribunal and later reversed by the High Court, which held that section 11 was only an enabling provision to make the agent liable to pay the tax and further that the principal who is also a "dealer" as defined in section 2(1)(k) of the Act would still be assessable under the Act.
11. This view was further reiterated in a later decision of this Court in G. Pampapatheppa & Sons v. Commissioner of Commercial Taxes (Sales Tax Appeals Nos. 21 and 22 of 1976 disposed of on 11th January, 1979) (printed at page 373 infra). The Deputy Commissioner in the appeals by the assessee in that case, had taken the view that only the commission agent should be assessed and not the principal the thus set aside the orders of assessment. The Commissioner reversed the order of the Deputy Commissioner and restored the assessment made against the principals.
12. Being aggrieved by the order of the Deputy Commissioner, the assessee-firm preferred appeals before the High Court. Their Lordships rejecting the contentions of the appellants held that merely because provisions of section 11 enables that authorities to pass orders of assessment against the commission agent acting on behalf of the known principals, it cannot be said that the principals cannot be assessed under the Act. Their Lordships further held that there is no bar in the statute for making assessment against the principals unless there is already an order of assessment against the commission agent in respect of the same turnover. This view was in conformity with the view expressed by the Division Bench earlier in Malladad and Bros.' case [1969] 23 STC 230 (Mys).
13. Applying the principal which is now well-settled so far as the liability of principal qua agent is concerned, the petitioner's contention in the present cases that Messrs. Tata Oil Mills Company Ltd. cannot be assessed under the Act and it is only Gekayel Enterprises who are appointed as commission agent to market their products in Bangalore that should be assessed to tax, has to be rejected. His Lordship Puttaswamy, J., as held in a recent judgment in Basavalingappa v. State of Karnataka [1985] 59 STC 1 (Kar) that section 11 in a limited way is a machinery provision. I agree with his Lordship's view.
14. On facts, it is stated by Sri Dattu, learned High Court Government Pleader, that there was no assessment made against Gekayel Enterprises who are the agents of the two periods in question. Therefore, assessments made against the principals for the two periods are justified in law and there is no reason to interfere with the same. Writ petitions are accordingly dismissed.
15. Writ petitions dismissed.