Karnataka High Court
Guduthur Bheemappa vs The Commercial Tax Officer, I Circle, ... on 1 August, 1980
Equivalent citations: 1980(2)KARLJ364, [1981]47STC121(KAR)
JUDGMENT Srinivasa Iyengar, J.
1. The petitioner has challenged a notice of demand dated 9th December, 1975, issued by the Commercial Tax Officer (I Circle), Bellary, purporting to be under section 12-B(1) of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as the Act), demanding payment of Rs. 2,666.80 as additional tax due up to the month of September, 1975, i.e., for July, August and September, 1975.
2. The petitioner is a dealer under the Act. He is also acting as a commission agent in respect of of known principals within Karnataka State. A notice had been issued dated 10th November, 1975, by the Commercial Tax Officer (exhibit A) stating that the turnover of the petitioner had exceeded rupees ten lakhs during the month of September, 1975, and in accordance with the amendment to the Act, by section 6-B, he was liable to pay additional tax at ten per cent. of the tax. On receipt of this notice, the petitioner sent a reply dated 17th November, 1975 (exhibit B), stating that the total turnover for the months of July, August and September, 1975, aggregated to Rs. 6,62,505.98 and out this a turnover in a sum of Rs. 1,79,690.81 was in respect of his own trade and a turnover of Rs. 4,82,815.17 was in respect of commission trade of goods supplied from known principals on agreed commission who had a turnover of less than ten lakhs per year and in view of these circumstances, no additional tax was liable to be paid. But the Commercial Tax Officer sent an endorsement dated 20th November, 1975 (exhibit C), quoting section 2(1)(v) which defined the turnover as meaning the aggregate amount for which goods are bought or sold, or supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration, and stated that the petitioner was liable to pay additional tax for the period 1st April, 1975, to 30th June, 1975, in a sum of Rs. 1,341.46 and giving a direction that the petitioner should also pay additional tax for the subsequent months also as their turnover for the period 1st July, 1975, to 30th September, 1975, had reached Rs. 6,62,505.00. This was protested in a reply sent by the petitioner dated 3rd December, 1975 (exhibit D). It was stated therein that the petitioner was acting as commission agent on behalf of known principals and as the principals' turnover did not exceed rupees ten lakhs, they were not liable to pay additional tax, and if only the principals' turnover exceeded rupees ten lakhs, there would be a liability. It was also contended that the turnover did not exceed Rs. 10 lakhs and unless an assessment was made there could not be any demand for payment of tax. It was therefore prayed that further proceedings may be dropped.
3. However, the Commercial Tax Officer issued a notice of demand (exhibit E) which is impugned in the writ petition confining the demand to the payment of additional tax for the three months, namely, July, August and September, 1975. Apparently the demand made for the period 1974-75 was dropped in the view that section 6-B of the Act was introduced by Karnataka Act No. 16 of 1975 and would come into force only with effect from 1st April, 1975, and the accounting period of the assessee was the year ending 30th June.
4. It is contented by Sri K. Srinivasan, the learned counsel for the petitioner, that the demand is illegal and not warranted by law. He submitted that in respect of a commission agent, by virtue of the provision in section 11, he would be liable to pay sales tax in respect of the transaction carried on, on behalf of the principal only in his character as an agent and the turnover brought to tax is the turnover of the principal and not the turnover of the agent himself, and this is clear from the decision of this Court in H. Veerabhadrappa v. Commissioner of Commercial Taxes ([1963] 14 S.T.C. 919.). In that case, it was observed, inter alia, after referring to the provision in section 11, that "........ it is clear that when an assessment is made on the agent under the proviso, it is an assessment made for and on behalf of the principal and that in respect of 'the transactions', namely, 'the transactions' referred to in the main part of section 11. This can only happen if the principal is liable to pay tax. Quite clearly, if the principal cannot be taxed in respect of 'the transactions' his agent also cannot be taxed in respect of the same .....". The learned counsel also sought to rely upon the decision in State of Madras v. Cement Allocation and Co-ordinating Organisation in this behalf. The contention is that the turnover of the principal does not exceed ten lakhs and the Commercial Tax Officer cannot aggregate the transactions of the several known principals and then make the agent liable for payment of additional tax. The learned counsel also cited a decision of the Kerala High Court in Jayanthilal & Bros. v. Appellate Assistant Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam ([1961] 12 S.T.C. 245.), to the effect that there must be as many separate assessments as there are non-resident principals and the turnover of all the non-resident principals could not be considered together in a single assessment. The decision of the Kerala High Court was in relation to section 18 of the General Sales Tax Act, 1125, applicable to that State and in relation to a provision asking to section 9 of the Act. It appears to me that the contention of the learned counsel that in order to attract liability to tax under section 11, the transaction to be considered is that of the known principal, i.e., the turnover in relation to that principal and, prima facie, the submission that the turnover of that principal must exceed ten lakhs if there should be a liability for additional tax, is correct. But, in the instant case, it is unnecessary to pursue this matter further because for the three months under consideration, the turnover had not reached ten lakhs and was in the neighborhood of Rs. 6.6 lakhs and the claim was for an advance tax under section 12-B(1) and it cannot be stated that the turnover reached ten lakhs even assuming that the turnover of the known principals should also be considered along with the petitioner's own turnover. As I stated earlier, the liability of the agent under section 11 of the Act is in respect of the turnover of the principal and in his character only as an agent and not as a turnover of himself as has been explained in the case of Veerabhadrappa ([1963] 14 S.T.C. 919). But, even taking the statement of the petitioner that the total turnover amounted only to about Rs. 6.6 lakhs, a liability to pay additional tax under section 6-B did not arise. Until the close of the accounting year and until an assessment was made, it could not be predicated that the turnover exceeded Rs. 10 lakhs. In these circumstances, the demand made is clearly untenable.
5. In the counter-affidavit filed, the only ground taken is that the writ petition is not maintainable. But, it is clear that the demand is patently unwarranted on the provisions of the Act. There was no assessment as such and it cannot be said that there was any right of appeal to the petitioner merely on the notice of demand.
6. Accordingly, the rule nisi is made absolute and the notice of demand, exhibit E, is quashed. Writ shall issue to the respondent not to enforce the said demand.
7. Petition allowed.