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Judgment
Rajagopala Ayyangar, J.—The question of law which has been referred to the Full Bench is :
Whether a licensed tanner who purchases untanned hides and skins from an unlicensed dealer is liable to be taxed on his turnover under R. 16 (2)
or under any other provisions of the Madras General Sales Tax Act and the Rules framed there under 7
The circumstances leading to this reference have been set out in the order of reference and need not be repeated.
It will be convenient to refer to the relevant provisions, of the Madras General Sales Tax and the Rules framed there under and examine the
question in the light of these provisions before dealing with the observations in the two decisions adverted to in the order of reference.
Section 3 of the Act is what might be termed the principal charging provision. The relevant portion of this section is in these terms :
(1) Subject to the provisions of this Act, (a) every dealer shall pay for each year a tax on his total turnover for such year; and
(3) A dealer whose total turnover in any year is less than ten thousand rupees shall not be liable to pay any tax for that year under Sub-S. (1) or
Sub-S. (2).
(4) For the purposes of this section and the other provisions of this Act, turnover shall be determined in accordance with such rules as may be
prescribed:
Provided that no such rules shall come into force unless they are approved by a resolution of the Legislative Assembly.
(5) The taxes under Sub-Ss. (1) and (2) shall be assessed, levied and collected in such manner and in such instalments, if any, as may be
prescribed.
Provided that
(i) in respect of the same transaction of sale, the buyer or the seller, but not both, as determined by such rules as may be described shall be taxed;
(ii) where a dealer has been taxed in respect of the purchase of any goods in accordance with the rules referred to in 01. (i) of this proviso, he shall
not be taxed again in respect of any sale of such goods effected by him.
Dealer'' is defined in S. 2 (b) as any person who carries on the business of buying or selling goods.
Though S. 30) levies a tax on the sale of goods on every dealer on his total turnover-subject to exceptions which arc not relevant-in the case of
hides and skins this provision is subject to the terms of S. 5 enacting single point taxation. S. 5reads :
Subject to such restrictions and conditions as may be prescribed including conditions as to licences and licence fees-
(i) the sale of handspun yarn and of any cloth woven on handlooms wholly with handspun yarn and sold by persons dealing exclusively in such
cloth, shall be exempt from taxation under S. 3, Sub-S.(l);
(ii) the sale of cotton (including kapas) and of cotton yarn other than handspun yarn shall be liable to tax under S. 3, Sub-S. (1), only at such single
point in the series of sales by successive dealers as may be prescribed and only at the rate of one-half of one per cent of the turnover at that point;
(iii) the sale of any cloth woven on hand'' looms wholly or partly with mill yarn shall be exempt from taxation under S. 3, Sub-S. (1), if the Bale is
to a wholesale or retail dealer in the State, or if the sale is for delivery outside the State and delivery is actually so made;
(iv) the sale of bullion and specie shall be liable to tax under S. 3, Sub-S. (1), only at such single point in the series of sales by successive dealers
as may be prescribed and only at the rate of one-fourth of one per cent of the turnover at that point;
(v) the sale of tea grown by the seller or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or
otherwise, shall be exempt from taxation under S. 3, Sub-S. (1), if the sale is for delivery outside the State and delivery is actually so made;
(vi) the sale of hides and skins, whether tanned or untanned ........ shall be liable to tax under S. 3, Sub-S. (1) only at such single point in the series
of sales by successive dealers as may be prescribed,
A S. 3 (1)itself opens with the words ''subject to the provisions of this Act S. 3would subject to the provisions of, among others, S. 5 (vi). It will
be noticed that Sub-Ss. 4and 5of S. 3aid S. 5refer to ''''prescription"" and under S. 2 (f) ''prescribed'' means prescribed by rules made under the
Act. In accordance with these provisions, rules have been made providing inter alia whether the buyer or the seller has to be taxed in respect of a
transaction of sale under proviso (1) to S. 3 (5) for the determination of the turnover of a dealer under S. 3 (4), and also generally for the
assessment, levy and collection of the tax under S.3 (5) as also in regard to restrictions and conditions including conditions as to licence and licence
fees referred to in the opening words of S. 5.
The rules are in two sets. The first is Madras General Sales Tax (Turnover and Assessment) Rules dealing with the determination of the
turnover, the ""''prescribing'''' of the person whose turnover is liable to be taxed, fixation of the points at which the transaction is liable to taxation in
respect of those commodities for which a single point taxation is provided for in the Act as also for the levy and collection of the tax. The other set
of Rules entitled the Madras General Sales Tax Act Rules lays down the procedure for application for licence under the Act, the authority to grant
them, the conditions subject to which they are granted, the fees prescribed there for, the accounts to be maintained by assessees, the hierarchy of
officials and authorities who are to carry out the assessment or hear appeals or deal with revisions therefrom and such other procedural matters. In
the present case we are concerned with the Turnover and Assessment Rules. R. 4 of these Rules provides :
(1) Save as provided in Sub-R. (2) the gross turnover of a dealer for the purposes of these rules shall be the amount for which goods are sold
by the dealer.
(2) In the case of the undermentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods
are bought by the dealer-
(a) groundnut,
(b) cashew, cotton (including kapas) bought by spinning mill or by dealer who exports outside the State,
(c) untanned hides and skins bought by a licensed tanner in the state, and
(d) untanned hides and skins exported outside the State by a licensed dealer in hides and skins.
R, 5 sets out how the net assessable turnover is derived, and Rr. 6 and 13 lay down the procedure by which the assessing authority determines the
turnover and levies the tax. Rule 14 enjoins upon the assessing authority the necessity to record its reasons in writing in cases where it determines
the turnover on a figure different from that shown in a return submitted under the provisions of the rules, with a proviso that the same shall not affect
the validity of assessments duly made. Rules 15 and 16 are the special rules designed to apply to the assessment and levy of the tax payable on
hides and skins, Rule 15 (1) enacts that Rr. 6 to 13 shall not apply to licensed tanners and other licensed dealers in hides and skins in respect of
their dealings in hides and skins but that the provisions of that and the following rule shall apply to them in respect of such dealings. The other Sub-
clauses of R. 15 are not very-relevant in the present context as they relate to the provisional assessments, their collection and the final adjustments
in the light of the turnover for the year when finally ascertained. R. 16 is the crucial rule which determines the points at which the tax on hides and
skins is levied. It is necessary, therefore, to set out this rule in full:
(1). In the case of hides and skins the tax payable under S. 3 (3) shall be levied in accordance with the provisions of this rule.
(2) No tax shall be levied on the sale of untanned hides or skins by a licensed dealer in hides or skins except at the stage at which such hide or
skins are sold to a tanner in the State or are sold for export outside the State.
(i) In the case of all untanned hides or skins sold to a tanner in the State, the tax shall be levied, from the tanner on the amount for which the hides
or skins are bought by him. (ii) In the case of all untanned hides or skins which are not sold to a tanner in the State but are exported outside the
State, the tax shall be levied from the dealer who was the last dealer not exempt from taxation under S. 3 (3) who buys them in the State on the
amount for which they were bought by him.
(3) Sales by licensed dealers of hides or skins which have been tanned within the State shall be exempt from taxation provided that the hides or
skins have been tanned in a tannery which has paid the tax leviable under the Act. If such hides or skins have been tanned in a tannery which is
exempt from taxation under S. 3 (3), the sale of such hides or skins shall be liable to taxation as under the next sub-rule below dealing with hides or
skins tanned outside the State.
(4) Sales by licensed dealers in hides or skins which have been tanned outside the State shall be exempt from taxation except at the stage of Bale
by the dealer, who is the first dealer not exempt from taxation under S.3 (3) who sells them within the State. The tax shall be levied from such
dealer on the amount for which he sells such hides or skins.
(5) Sale of hides or skins by dealers other than licensed dealers in hides or skins shall, subject to the provisions of S. 3, be liable to taxation on
each occasion of sale.
Before considering the exact terms of this rule, it is necessary to set out the terms of R. 5 of the General Sales-Tax Rules under which dealers
have to obtain licence for the purpose of their dealings. This rule runs thus:
(1) Every person who
(a) deals in cotton and or cotton yarn other than handspun yarn and or handspun yarn, or
(b) deals exclusively in cloth woven on handlooms wholly with handspun yarn, or
(c) deals in cloth woven on handlooms wholly or partly with mill yarn, or (d) deals in bullion and or specie, or (e) deals in hides and or skins
whether as a tanner or otherwise, or (f) for an agreed commission or brokerage, buys and or sells goods of any description on behalf of known
principals, shall, if he desires to avail himself of the exemption provided in Ss. 5 and 8 or the concession of taxation only at a single point or of
taxation at the rate specified in S. 5, submit an application in Form I for a licence in respect of each of his places of business to the authority
specified in Sub-Rule (2) so as to reach him not later than the 30th day of April of the year for which the licence is applied for : Provided that in the
case of a business which is commenced in the course of a financial year, the dealer shall submit the application for the licence to such authority so
as to reach him not later than thirty days from the date of commencement of his business. Provided further that, where the exemption or concession
aforesaid was conferred for the first time by the Madras General Sales-tax (Amendment) Act, 1947 and the dealer had commenced business,
before the 1st January, 1948, he shall submit the application for the licence not later than the 1st March, 1948.
It will be seen that the licensing provisions are not compulsory and the basis upon which they are worked is that if a dealer desires to avail himself
of the exemption provided under Ss. 5 and 8 or the concession of taxation only at a single point, he has to obtain a licence. In other words, the
penalty for not taking out a licence is the deprivation of the concessions named in Sub-Cls. 5 (1) (f). We are not now called upon to consider the
exact scope of the concessions as laid down under this provision for the very good reason that the case involved in the present reference relates to
a licensed tanner and his liability to taxation under R. 16 of the Turnover and Assessment Rules.
It will now be convenient to consider the terms of R. 16 under which in the case of hides and skins the single point in the series of sales by
successive dealers has been prescribed, Sub-R. (1) laying down that
In the case of hides and skins the tax payable under S. 3 (1) shall be levied in accordance with the provisions of this rule
makes it clear that so far as hides and skins are concerned, the levy of the tax under the charging provision, S. 3 (1), is to be determined only in
accordance with the provisions of R. 16. This really carries out the provisions of R. 15 (1) under which in relation to licensed dealers in hides and
skins in respect of their dealings in hides and skins, the provisions of R. 16 shall apply. This reference is concerned with the proper interpretation of
R. 16 (2) which runs:
No tax shall be levied on the sale of untanned hides or skins by a licensed dealer in hides or skins except at the stage at which such hides or skins
are sold to a tanner in the State or are sold for export outside the State.
(1) In the case of all untanned hides or skins sold to a tanner in the State, the tax shall be levied from the tanner on the amount for which the hides
or skins are bought by him.
(ii) In the case of all untanned hides or skins which are not sold to a tanner in the State but are exported outside the State, the tax shall be levied
from the dealer who was the last dealer not exempt from taxation under S. 3(3) who buys them in the State on the amount for which they were
bought by him.
We shall now set out the respective arguments submitted on behalf of the assessee and by the learned Advocate-General on behalf of the State as
to the proper scope and effect of this sub-rule. The construction which the learned Advocate-General invited us to adopt was his. Under S. 3 (1)
of the Act a liability is imposed on every dealer to a tax on his total turnover subject only to the condition that in respect of each transaction of sale,
the rules would determine whether it is the buyer or the seller that would be liable but not both. This multipoint levy is not, however, applicable to
sales of hides and skins but they are to be taxed only at a single point fixed by the rules. S. 5 (vi) postulates a series of sales each of which might be
taxable the rule-making authority being given the power to fix a single point in such series of sales at which the tax is to be levied. If, therefore, the
rules fixed a single point at which the sale is to be taxed and if they determined whether it was the seller or the buyer that should pay the tax, the
charging provision immediately comes into operation, the charge gets levied and the tax becomes exigible. R. 4 of the Turnover and Assessment
Rules satisfies all the requirements of law to bring the charge into operation. Sub-R. (2) specifies, a few commodities in respect of which the tax is
payable on the purchase turnover, that is, it is payable by the buyer and among these, hides and skins are included. The prescription, therefore
enjoined by S. 3 (5) proviso (i) is made. Sub-Clauses (c) and (d) perform a double function. They fix the single point for taxation as required by S.
5(vi and in addition they also specify as required by S. 3 (5) as to whether it is the buyer or the seller that should be taxed in respect of a sale in
that commodity. R. 4 (2) (c) provides that in respect of untanned hides and skins bought by a licensed tanner in the State, the gross turnover of the
dealer is the amount for which the goods are bought by him. There is no doubt that in the present case, it is a licensed tanner who has bought the
goods. The expressions ''bought by a licensed tanner'' in the context and in the light of the other provisions of the rules should be understood to
mean ''bought by a tanner'' for the purpose of tanning and is actually tanned by him, that is, the licensed tanner is referred to not in an occupational
sense merely. The forms prescribed under the rules for the returns to be submitted by the dealers in hides and skins effectuate this purpose and
enable the tax to be levied on the purchase turnover of hides which are really consumed in a tannery or which are exported outside the State as
untanned hides and skins in respect of which also the tax is laid down by the sub-rule. The forms referred to are forms A-4 and A-5 and under
these the tanner dealer returns his purchase turnover but this is deducted from the assessable turnover when the goods are sold to another dealer
within the State with, out being tanned by the tanner-purchaser. The argument is that it is immaterial for the purpose of R. 4 (2) (c) as to the person
from whom the licensed tanner purchases and that a liability to pay the tax arises on his purchase and it does not matter whether the person from
whom he buys is a licensed or an unlicensed dealer. This last argument is put forward in order to sustain the plea that R. 4 (2) (c) and (d) also
serve to fix the single point for the purpose of taxation under S. 5 (vi) of the Act. It is urged that if R. 4 (2) (c) and (d) were under stood in this
sense, there would automatically be only the single point, for there cannot be a series of purchases by tanners for tanning for when the process of
tanning is completed, the goods will cease to be untanned skins and hides and in regard to sub rule (d) there cannot be any further sales in the State
if the goods have been exported. The further argument is that all dealings in hides and skins not falling within R. 4 (2) (c) and (d) are
comprehended within R. 4 (1) under which the tax is levied on the seller on his sale turnover. This contention about the scope and effect of R. 4 (2)
is sought to be reinforced by a reference to the language and form in which the tax liability is dealt with by R. 16. The provision in R. 16 (2), it will
be noticed, is in the negative and forbids the levy of a tax on the sale of untanned hides and skins except at the stage at which such hides and skins
are sold to a tanner or sold for export. It is argued that this negative form was adopted because such sales would have fallen under R. 4 (1) and
would have been liable to a tax on their sale turnover. It is urged that alter this general declaration which, so to speak, gets rid of the absolute
liability imposed by R. 4 (1), the two paragraphs of 16 (2) numbered (i) and (ii) deal with the exact class of cases which are dealt with by R. 4 (2)
(c) and (d). In other words R-16 (2) (i) merely reproduces and re-enacts R. 4 (2) (c) and should not consequently be understood as varying the
category of transactions which the language of R. 4 (2) (e) is apt to include within its signification. The words therefore in R. 6 (2) ''in the case of all
untanned hides or skins sold to a tanner should be read as meaning untanned skins and hides purchased by a tanner from any person whatsoever
and the tax is to be levied on the tanner on the amount for which the hides or skins are bought by him. Similarly, it is said, Sub-R. (ii) reproduces
and re-enacts R. 4 (2) (d). On this basis the argument is that there is no specification either in R. 4 (2) (c) or R. 16 (2) (ii) that the purchase by the
tanner should have been from a licensed dealer so that every purchase from whatever source would have to be included in this turnover.
On the other hand, the contention of Mr. K. V. Venkatasubramania Ayyar, the learned Counsel for the assessee, is that the charging provision
under the Madras General Sales-Tax Act, is S. 3 (1) but that it becomes operative on the rule prescribing whether it is the buyer or the seller on
whose turnover the tax is to be levied in respect of particular commodity. In addition to this general rule, the levy of tax on hides and skins, is
subject to a further condition that the rules must prescribe one single point in the series of sales at which the tax is to be levied. The content and
scope of R. 4 is merely to prescribe under proviso (1) to S. 3 (5), namely the determination as to whether it is the buyer or the seller that should be
taxed and R. 4 (2) (c) cannot be read as the fixation of a single point for taxation within the meaning of S. 5 (ii) of the Act. He points out that S. 5
(ii) requires that in the case of all transactions in hides and skins, the single point for taxation has to be fixed and that even accepting the argument
of the learned Advocate-General, a large number of transactions in hides and skins fall within R. 4 (1) under which admittedly there is no fixation of
a single point. It is, therefore, unreasonable and not proper to assume that in respect only of particular specified transaction?, R. 4 (2) (c) and (d)
operate not merely as prescriptions under the first proviso to S. 3 (5) but also fix the single point for taxation under S. 5 (vi). The other rules in the
Turnover and Assessment Rules particularly Rr. 15 and I6make it absolutely clear that R. 4 is not designed or apt to fix the single point for
taxation. But, on the other hand, it is really one which merely determines whether in respect of particular transactions in any commodity, it is the
buyers'' or the sellers'' turnover that is liable for taxation.
Having considered the matter carefully we are clearly of opinion that the contention raised on behalf of the assessee ought to prevail. In the case
of hides and skins no turnover is liable to tax until the single point in the series of sales is fixed by the rules and the turnover represents the total of
the transactions in the year. R. 15 is very clear that the turnover in respect of dealings in hides and skins has to be ascertained and assessed under
R. 16. R. 15, it will be noticed, specifically prescribes that the provisions of that rule apply to the dealings by ""licensed"" tanners and dealers.
Therefore in the absence of any specific indication to the contrary, the dealings referred to in R. 16 would be held to mean only dealings by
licensed dealers. It is in that context that the terms of R-16 have to be understood. R. 16 (1) is a further declaration which emphasises that in
respect of dealings in hides and skins the determination of the taxable turnover would be governed by the other sub-rules. R. 16(2) enacts a
general rule that in respect of dealings in hides and skins, there shall be no taxation at successive points but only at two mutually exclusive points,
thus conforming to the requirements of the prescription called for by S. 5 (vi). The two mutually exclusive points are set out in Sub-Cls. (i) and (ii)
which follow the main portion of the sub-rule. The first relates to a tanner which in the context undoubtedly means and can only mean a tanner who
has actually tanned those goods. Sub-Cl. (ii) deals with goods exported outside the State. It will be seen that in both these cases this will be the last
sale of goods within the State as untanned hides and skins for in the first case, after tanning it will become tanned hides and skins, a matter which is
dealt with by R. 16 (3) and in the case covered by Sub-Cl. (ii) the untanned hides and skins would have left the State. There-fore, there could be
no further sales of the commodity within the State. The terms of R. 15 as well as those of R. 16 (2) make it clear that it is a dealing by a licensed
dealer that is being dealt with under these rules. The argument of the Advocate General is that paragraphs (i) and (ii) of R. 16 (2) have to be
divorced from the opening portion of R. 16 (2) which refers to dealings of licensed dealers and should be read as re-enacting the provisions of R.
4 (2) (c) which do not specifically refer to the dealer who sells to the tanner as being licensed. An analysis of R. 16 (2) clearly establishes the
untenability of the argument on behalf of the State. The opening paragraph consists of two parts. The first is couched in the negative and reads like
an exemption of the levy of tax on the sales of untanned hides and skins by licensed dealers thus carrying out the object of R. 15 (1) under which
this rule has to provide for dealings in hides and skins by licensed dealers. To this extent it negatives any liability that might arise on sales of hides
and skins which might have attached to such sales by reason of the language of R. 4 (1). The second limb of the sub-rule enacts two exceptions
and provides for taxability in those two cases. The two types of transactions are indicated as the stages at which the tax would be levied. The first
is when such goods are sold to a tanner in the State and the second is when they are sold for export outside the State. Having regard to the form of
this rule which deals with sales and not with purchases, the rule has to be read as a sale by a licensed dealer to a tanner in the State. Though the
sub-rule if read in vacuo might mean "" whether the sale is effected to a licensed or an unlicensed tanner "" yet read in conjunction with R. 15 (1)
there can be no doubt that the tanner who is referred to in the second limb of the opening paragraph of R. 16 (2) is a licensed tanner and this
construction would be in accord with the form of R. 4 (2) (c) also. In the same manner the sale for export which is referred to in the last portion of
this paragraph would necessarily mean a sale by a licensed dealer.
It will be seen that the two paragraphs numbered (i) and (ii) that follow the opening paragraph of R. 16 (2) really deal with the two exceptions
which have been indicated by its second limb. Read in the light of this context there can be no room for doubt that the dealings of the tanner which
are liable to tax under (i) are sales by licensed dealers which words are to be found in the opening portion of R. 16 (2). The expression ''sold to a
tanner'' in R. 16 (2) (i) is a repetition of what is contained in the opening paragraph of R. 16 (2) and a continuation of the same idea. On the other
hand the form of expression used in R. 4 (2) (c) is entirely distinct. The pattern of R. 16 (2) (ii) is exactly identical and does not need separate
consideration. We are, therefore, unable to accept the argument of the learned Advocate-General that R. 16 (2) (i) should be read as identical with
R. 4 (2) (c) and that the purchase turnover of a licensed tanner would include purchases from unlicensed dealers.
Rule 15(1) specially declares that the provisions of that and the following rule shall apply to dealings in hides and skins by licensed dealers
alone, and this has been consistently carried out by Rr. 16 (2), (3) and (4). This scheme is emphasised by the provisions made by R. 16 (5) under
which in the case of unlicensed dealers, the rule of single point taxation gives place to multi-point tax. It may be mentioned that this Court has held
in Syed Mohammed and Co. v. State of Madras (1952) 2 M.L.J. 598 at 612 = 65 L.W. 1030, R. 16 (5) to be ultra vires of the rule-making
power as contravening the provisions of S. 5 (vi) of the Act and the decision of this Court has been affirmed by the Supreme Court on appeal.
What the. effect of this is upon the liability of an unlicensed dealer to taxation does not arise for consideration in the present case because the
assessee whose case is referred is a licensed dealer. But in considering the scheme of taxation enacted by R. 16, we cannot ignore the existence of
Sub-R. 5.
The conclusion we have reached as a result of the above discussion is that (1) the charging provision, S. 3is subject in the case of transactions
in hides and skins, to the terms of S. 5 (vi) under which a single point of taxation in a series of sales has to be fixed by the rules; (2) R. 4 (2)is not
the fixation of a single point within S. 5 (vi) but it is merely designed to determine whether it is the buyer or the seller that shall be liable to be taxed;
(3) the single point is fixed and the liability to tax is established only under R. 16; and (4) that under R. 16 (2) (i) it is only the sale of untanned hides
and skins by a licensed dealer to a licensed tanner who tans the same that gives rise to a tax liability and that purchases of untanned hides and skins
by tanners from persons other than licensed dealers are not within the taxing provision.
We might now refer to the two decisions which are mentioned in the order of reference. The first of them is a decision of this Court in Syed
Mohatned and Co. v. State of Madras (1952) 2 M. L. J. 598 at 612 :65 L.W. 1030., and the passage relevant to the present context is at page
It runs thus :
To appreciate the true position it is necessary to examine the scheme of taxation which has been adopted in rules with reference to untanned hides
and skins.
XXXX
In broad outline, the scheme of taxation adopted by the rules is to levy the tax at the stage when the articles are tanned in the State or exported to
foreign countries for tanning. Thus, under R. 4 (2) (c) when a licensed tanner purchases untanned hides and skins for tanning, the amount for which
he purchases the goods is to be included in his turnover and he is taxed thereon; and under R. 4 (2) (d) when a licensed dealer purchases untanned
hides and skins for export, the amount for which he purchases would be included in his turnover and he would be taxed thereon. Then comes R.
16 which has come in for considerable criticism. R. 16 (2) fixes in accordance with R. 4 the points of taxation at the stage of tanning or at the stage
of export. But then, it limits the operation of this rule to sales by licensed dealers. It is this limitation that furnishes the ground for attack on the rules.
To understand the object it will be useful to analyse the possible cases which might arise on the application of R. 16 (2). Taking first the case of
hides and skins which are tanned within the State, four possible situations might arise. There might be a sale by a licensed dealer either to a licensed
tanner or to an unlicensed tanner; or there might be a sale by an unlicensed dealer either to a licensed tanner or to an unlicensed tanner. When the
sale is by a licensed dealer, R. 16 (2) (i) provides for a tax being levied on the tanner whether he is licensed or unlicensed. But where the sale is by
an unlicensed dealer, there is a difference in the incidence of taxation. If the sale is to a licensed tanner, then under R. 4 (2) (c), the purchaser has
to pay the tax. But where the sale is to an unlicensed tanner R. 4 (1) will apply and the tax will fall on the seller. R. 16 (5) provides that sale by
dealers other than licensed dealer will be ""liable to taxation on each occasion of Bale."" Under this sub-clause when there are successive sales by
unlicensed dealers the tax will be leviable on such occasion of sale and that will be inconsistent with S. 5 (vi) which provides for taxation at a single
point.
On the facts of the case before this Court, it is clear that the question as to the liability to taxation by licensed tanners of goods purchased from
unlicensed dealers did not arise for consideration at all. The case was one which related to a licensed tanner who had also purchased from licensed
dealer and the point raised for consideration of the Court was the constitutional validity of the provision of R. 4 under which the tax was leviable on
a purchaser in certain cases. The contention raised was that as Government of India Act, 1935, under which the Madras General Sales-Tax Act
was enacted enabled the levy of a tax on sales of goods, the power did not comprehend legislation by which tax was imposed on a buyer. There
were other certain subsidiary points arising under Art. 14of the Constitution of India and also an attack upon Rr. 15 and 16 of the Act. But the
point in the present form was never before the Court and these observations arose merely incidentally in discussing the scheme of taxation and are
wholly in the nature of an obiter, the Court''s attention not having been directed to the particular point which has now arisen for discussion.
In the light of the elaborate argument which has been addressed to us upon the relative scope of R. 4 (2) and Rr. 15 and 16 we are unable to
agree that the single point for taxation is fixed under R. 4 (2) (c) or that sub-rule by itself imposes a liability to tax divorced from the conditions laid
down in R. 16 of the Turnover and Assessment Rules.
The other decision is the ore reported in Mohammed Zakiria and Co. v. Government of Madras (1954) 2 M.L.J. 668:67 L.W. 837. The point
was stated by Satyanarayana Rao, J.. in these terms :
The short point, that has been raised by the learned Counsel for the assessees is that under R. 16 a tanner may be taxed on the purchase price only
if his purchase was from a licensed dealer of untanned hides and skins, and if his purchase was only for the purpose of tanning by him. Until these
two conditions were satisfied, the levy of the tax by the Department could not be justified. As regards the second of the two conditions, it is stated,
that the language of the rule ''sold to the tanner'' and the language of the return Form A-4 prescribed by the rules in which the assessee is required
to state the amount for which hides and skins were purchased for tanning by the assessee as well as the exemption under Sub-Cl. (3) of S.
16undoubtedly support the contention of the learned Counsel for the assessee for otherwise there is the possibility of successive tanners being
taxed under this rule. If the tanner purchases from a licensed dealer and then Bells it without tanning to another tanner, who is also a licensed tanner
and so on, all these tanners could be taxed under this rule and unless a limit of the nature suggested, namely, that the purchase must be for tanning
by the tanner himself is imposed, the multi-point tax cannot be avoided.
As regards the other contention, that the purchase must be from a licensed dealer, with reference to the turnover in dispute, the assessee did not no
doubt make any attempt either before the Department or before the Appellate Tribunal to raise the question and substantiate the point by placing
material before any of them. This was explained by the assessee as due to the fact, that until the law was settled by the Supreme Court and also by
this Court that E. 16 (5) was ultra vires, it was assumed that even purchases from unlicensed dealers by a tanner could be made liable and that,
therefore, there was the omission to draw the distinction between purchase from a licensed dealer and purchase from an unlicensed dealer. Having
regard to the fact, that there was some confusion in the mind of the assessee and also the Department till the law was settled recently, we think
there is justification for the contention of the assesses, that his omission was not willful but was due to this circumstance.
In the light of these observations the learned Judge remitted the case to the Tribunal for disposal after the assessee was given an opportunity to
prove his contention that his purchases were from an unlicensed dealer. We do net read this judgment as deciding the point now under reference.
The utmost that could be said is that it considered the point now raised in favour of the assessee under reference as prima facie tenable. As would
be seen from our discussion of the point referred we are in agreement with the view which the learned Judges in this case were inclined to accept.
The only reservation which we desire to make is that the conclusion does not really flow by reason of the invalidity of R. 16 (5) but because of the
proper construction of R. 16 (2) for R. 16(5) has to do with the taxation of unlicensed dealers whereas the question now under issue is the
transactions of licensed dealers though their purchases are from unlicensed dealers .R. 16 (5) could have no bearing either as imposing or
exempting any tax liability in such a case.
Our answer to the question referred to us therefore is that in computing the purchase turnover of a licensed tanner only the sales to him from
licensed dealers could be included.
The petition came on for final orders before the Bench after the expression of opinion by the Full Bench.
JUDGMENT
(Delivered by Rajagopala Ayyangar, J )
This is a revision filed by the assessees against the order of the Sales-Tax Appellate Tribunal. The assessees are a registered firm carrying on
business as dealers in hides and skins with a tannery at Red Hills and office at 31, Angappa Naieken Street, Madras. They hold a licence in
respect of their dealings in hides and skins as dealers cum tanners. The assessment now in question relates to the year 1950-51. The firm consists
of two partners Hejee Abdul Shukoor and Hajee Muhammad Ibrahim and carries on business in the name and style of C. Hajee Abdul Shukoor
& Co. The Deputy Commercial Tax Officer, Harbour Division, who is the assessing authority, determined the net turnover of the assessees at Rs.
19,82,235-14-5. The assessees filed an appeal to the Commercial Tax Officer and there raised a contention that as the bulk of the goods tanned
by them were sold for export they were entitled to exemption under Art. 286 (1)(b) of the Constitution. They further urged that barring the
purchase of a total value of Rs. 8,65,210 2-6 which represented local purchases the rest of the goods were purchased outside the State and
therefore not liable to be included in their turnover. These purchases fell under three categories (1) purchases through their agents at Secunderabad
totalling Rs. 95,630-13 6; (2) purchases from merchants in Bombay aggregating to Rs. 2,72,205-8-3 and (3) purchases from Bangalore to talling
Rs. 7.49,179-6-2. The Commercial Tax Officer rejected the contention put forward on behalf of the assessees that none of these categories of
purchases were affected outside the Madras State and dismissed their appeal. The matter was then taken up to the Sales-tax Appellate Tribunal
by a further appeal by the assessees. Before the Tribunal besides the point urged before the lower authorities, certain additional points which we
shall deal with presently were also raised. The Tribunal accepted the contention of the assessees that the purchases from Secunderabad had been
effected outside the State and that therefore they could not be included in the turnover of the assessees but after excluding this item held the
assessees liable to pay the tax on the turnover of (1) local purchases regarding which no controversy was raised and (2) purchases from Bangalore
and purchases from Bombay. In regard to the Bangalore purchases, the points raised were these: These purchases were effected by the partner
Hajee Muhammad Ibrahim who was resident of Bangalore and who besides being a partner of the assessee firm was also independently carrying
on a business at Bangalore in hides and skins. Two alternative contentions were raised as regards these purchases. The first was that the purchase
by the partner Ibrahim was a purchase on behalf of the assessee firm. If the assessees had been able to establish this undoubtedly they would have
proved that the purchase had been effected outside the State and the purchase price could not have been included in their turnover. The Tribunal,
however, found that the goods were purchased not by the assessee firm but by Ibrahim himself and that Ibrahim had subsequently effected a sale
of the goods to the assessee firm, the latter sale having been effected and completed within tie Sate. On this finding of fact there can be no basis for
the contention that the sale was outside the State and as a result learned Counsel for the assessees has not repeated this argument before us. The
other was a legal contention accepting the finding that the purchase from the Bangalore merchants was made by Ibrahim individually but that as
Ibrahim was a partner in the assessee firm there could not legally be a sale by him to the assessee firm because a person cannot contract with
himself and another. The Tribunal rejected this argument and in our opinion rightly. For supporting this point learned Counsel for the assessees
relied on the decision in Rustomji v. Sheth Purshotatmdas (1901) ILR 25 Bom 606..
The actual question which arose for decision does not bear on the point we have to consider. This was whether where an individual was a
common partner in two firms, any suit could be brought by one firm against the other on any transaction between them, a procedural problem
which has been solved by the enactment of O. 30, R. 9, Civil Procedure Code, (vide also O. 48, A.R.S.C.). In the absence of any legislative
guidance, we would have had to consider the very interesting question as to how far the mercantile concept of a firm being invested with juristic
personality effected by the combined operation of the terms of the Partnership Act and O. 30, Civil Procedure Code, has rendered a partner
sufficiently distinct from the firm of which he is a member as to render it possible for contracts being concluded between them. In this connection
reference may be made to a passage in the judgment of Sir John Beaumont in B.M. Goculdas v. Alembic Chemical Works Co. Ltd., (1948) 2
M.L.J. 237: L.R. 75 I.A-147:61 L.W. 464 (P.C.) where he said :
The Indian Partnership Act goes further than the English Partnership Act of 1890 in recognising that a firm may possess a personality distinct from
the persons constituting it, the law in India in that respect being more in accordance with the law of Scotland than with that of England.
We are, however, relieved of this necessity by reason of the Explanation to S. 2 (b) of the General Sales-Tax Act which runs:
A co-operative society, a club, a firm, or any association which sells goods to its members is a dealer within the meaning of this clause.
It follows that a transfer of the property, in goods by a member of a firm to the firm is a sale within the meaning of the General Sales-Tax Act.
In the case of purchases from Bombay the assessees made an attempt before the Tribunal to prove that the sale transactions were completed
out side the State but the Tribunal held against them on the facts and so the point is no longer open to the assessees in this Court.
In regard to both the Bombay and Bangalore purchases a further point was raised before the Tribunal that even assuming that the purchases
took place within this State, they were purchases from unlicensed dealers, and that on a proper construction of the Sales-Tax Act and the rules
framed thereunder, particularly Rr. 15 and 16 of the Turnover and Assessment Rules, these purchases could not be included in their taxable
turnover. This contention which was negatived by the Tribunal was raised before us, and having regard to the importance of the point and certain
conflicting observations in decisions of this Court, it was referred by us to a Full Bench. The Full Bench has now answered the reference in favour
of the assessees. The result is that these purchases both from Bangalore and Bombay which are purchases from unlicensed dealers are not liable to
be included in the taxable turnover of the assessees. We might mention in passing that though the partner Ibrahim was the seller in Bangalore, as he
was not individually licensed under the Madras General Sales-Tax Act, the purchase from him by the assessee firm should be treated as a
purchase from an unlicensed dealer. The result is that the assessees are entitled to succeed and the order of the Tribunal including the Bangalore
and Bombay purchases in the turnover of the assessees is set aside. In view, however, of the assessees having failed in the other contentions raised
by them before us, we direct that there should be no order as to costs in this revision case.