State of Andhra Pradesh vs Garlapati Hanumantha Rao and Company

B.P. Jeevan Reddy, J.—This tax revision case is preferred by the State against the judgment of the Sales Tax Appellate Tribunal in Tribunal Appeal No. 38 of 1979. Only one question is urged before us. It was considered as question No. 2 by the Tribunal. We shall, therefore, state the facts only in so far as the said question is concerned.

The respondent-dealer was finally assessed under the Andhra Pradesh General Sales Tax Act by the Commercial Tax Officer, Nellore, for the assessment year 1973-74 on a net turnover of Rs. 4,46,811.19. An appeal was preferred by the dealer questioning, inter alia, the levy of tax on a turnover of Rs. 72,850.46. The Appellate Assistant Commissioner set aside the assessment with respect to the above turnover. Thereupon, the Deputy Commissioner in exercise of his suo motu powers of revision under sub-section (2) of section 20 revised the said appellate order in so far as it held that the turnover in a sum of Rs. 72,850.46 is not exigible to tax. The dealer thereupon filed an appeal to the Tribunal. The Tribunal held, following the decision of this Court in Irri Veera Raju v. Commercial Tax Officer, Tadepalligudem 1967 20 STC 501 that the Deputy Commissioner was not right in setting aside the appellate order. The reasoning of the Tribunal is that an agent is liable only where the principal is liable and, therefore, when the turnover of each of the principals does not exceed the prescribed limit [prescribed u/s 5(1) with respect to general goods], the agent cannot be made liable merely because the agent''s total turnover exceeds the said limit. It is the correctness of the said view that is questioned in this tax revision case.

The learned Government Pleader contended that after the decision of this Court in Veera Raju''s case 1967 20 STC 501 the Andhra Pradesh Legislature has stepped in and amended the definition of "dealer". In the definition of "dealer" in sub-clause (iv) of clause (e) of section 2, in the place of the word "principal" the words "principal or principals" were substituted by Act 5 of 1968. The learned Government Pleader contended that the said amendment was brought in expressly with a view to get over the judgment of this Court aforesaid and, therefore, it must be held now that even where an agent carries on business of buying and selling goods on behalf of more than one principal, he would be a dealer for the purpose of the Act irrespective of the fact that the turnover of each of his principals is within the prescribed limit. We do not think that this contention can be accepted.

The definition of dealer before Act 5 of 1968, in so far as it is relevant, read as follows :

"(e) ''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 -

(iv) a commission agent, a broker, a del credere agent, 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."

Section 5(1) as it stood at the relevant time provided :

"Every dealer (other than a casual trader and an agent of a non-resident dealer) whose total turnover for a year is not less than Rs. 25,000 and every agent of a non-resident dealer, whatever be his turnover for the year, shall pay a tax for each year, at the rate of 2 paise on every rupee of his turnover."

Section 11 read as follows :

"11. The liability of resident principal and his agent to pay tax. - The tax or penalty due under this Act, in respect of a transaction of sale or purchase effected by any agent on behalf of a principal who is a resident of the State shall be assessed or levied and collected from the agent, in every case where such principal would be otherwise liable to such tax or penalty in respect of that transaction. Where the agent has paid the tax or penalty in respect of such transaction he may, without prejudice to his other rights to recover from his principal such tax or penalty, retain out of the moneys payable to the principal, a sum equal to the amount of tax or penalty so paid by him :

Provided that the tax or penalty assessed or levied on, or due from, the agent, may be recovered by the assessing authority from the principal, instead of from the agent.

Explanation. - For the purposes of this section, the expression ''agent'' shall have the meaning assigned to the expression ''dealer'' in sub-clause (iv) of clause (e) of sub-section (1) of section 2."

In Irri Veera Raju and Others Vs. The Commercial Tax Officer and Another, the petitioners carried on business in jaggery as commission agents on behalf of various ryots by selling the jaggery on their behalf and collecting commission from them. Each principal''s turnover did not exceed the taxable limit. The petitioners accordingly claimed that they too are not liable to tax. The department did not agree. When the matter came to this Court, it was held that the words "on behalf of any principal" occurring in the definition of dealer in section 2(1)(e)(iv) of the Act indicate that the agent is a dealer in respect of each of the principals and that he is deemed to be as many dealers as there are principals. It was held that the total turnover of the petitioners in respect of several principals could not be computed for assessing them when, in fact, the turnover of each one of the principals was below the taxable limit. In other words, it was held that inasmuch as the liability of the agent was co-extensive with that of the principal, he cannot be made liable where the principal himself is not liable to tax. Evidently to get over this decision, Act 5 of 1968 substituted the words "principal or principals" in the definition of "dealer" in section 2(1)(e)(iv) and also recast section 11. The amended section 11 read as follows :

"(i) the tax or penalty due under this Act, in respect of a transaction of sale or purchase effected by any agent on behalf of a principal who is a resident of the State, shall be assessed or levied and collected from the agent irrespective of the fact that such principal is not liable to pay the tax or penalty in respect of that transaction on account of the turnover of the principal being below the minimum turnover specified in sub-section (1) of section 5; and

(ii) where the agent has paid the tax or penalty in respect of such transaction of sale or purchase effected by him and where the principal would be otherwise liable to pay the said tax or penalty, the agent may retain, out of the moneys payable to the principal, a sum equal to the amount of tax or penalty so paid by him :

Provided that the tax or penalty assessed or levied on, or due from, the agent, may be recovered by the assessing authority from the principal instead of from the agent only if the principal is liable to pay the said tax or penalty.

Explanation. - For the purposes of this section, ''agent'' shall have the meaning assigned to the expression ''dealer'' in sub-clause (iv) of clause (e) of sub-section (1) of section 2."

The purpose of the amended section 11 clearly was to make the agent liable irrespective of the fact that the principal was not liable on the ground that his turnover was below the prescribed limit. In other words, the turnover of the agent was made relevant. The amended section 11 was however struck down by this Court in Konathala Venkata Ramana v. State of Andhra Pradesh 1969 24 STC 367 as discriminatory. This Court reiterated the principle that the agent''s liability is co-extensive with that of the principal and since section 11 is only a machinery section and not a charging section, the agent cannot be made liable without making the principal liable. It was held that the amended section 11 violates article 14 of the Constitution. After this decision, the Legislature again stepped in and enacted the Andhra Pradesh General Sales Tax (Amendment) Act, 1970. By virtue of this Amendment Act, the original section 11 as it stood on 1st August, 1963, was revived. Second proviso was added to section 5(1). The assessments already made were validated. This amendment was again questioned in this Court. The matter ultimately went up to the Supreme Court and in Jonnala Narasimharao & Co. v. State of Andhra Pradesh 1971 28 STC 262, the Supreme Court upheld the Amendment Act in full.

What is, however, relevant to note is that the second proviso to section 5(1) made the principals liable irrespective of their turnover only in so far as jaggery is concerned. In so far as other general goods are concerned, the position remained, as before 1970 Amendment Act. In other words, in so far as the general goods like the one concerned herein is concerned, the ryot (principal) would not be liable unless he sells the goods more than the prescribed limit specified in section 5(1). In such a situation, it is difficult to say that the agent becomes liable merely because of the words added in the definition of "dealer" in section 2(e)(iv). Since the basic principle is that the liability of the agent is co-extensive with that of the principal, an agent cannot be made liable unless the principal is made liable. It was in view of this principle that the principals were made liable in so far as jaggery was concerned but no such provision was made in so far as other general goods are concerned. In such a case, in respect of other general goods, the principal would not be liable unless he sells goods above the prescribed limit, if so, the agent would also be not liable. The turnover of the agent comprising sales on behalf of several principals cannot be clubbed together and he cannot be made liable. We do not think that the words added in the definition are sufficient to bring about the said result. We are, therefore, of the opinion that the Tribunal was right in holding that the said turnover in a sum of Rs. 72,850.46 relating to general goods and representing the sales effected by the dealer as agent on behalf of several principals cannot be brought to tax inasmuch as the sale on behalf of each principal was below the prescribed limit.

The tax revision case accordingly fails and is dismissed. No costs. Advocate''s fee Rs. 150.

Petition dismissed.