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Judgment
P.S. Kailasam, C.J.—This case is referred to a Full Bench by Ismail and Sethuraman JJ., for determination as to the scope of Section 13(5)
of the Tamil Nadu General Sales-tax Act, 1959.
The petitioner-assessee sold medicine (Metol) worth Rs. 69640 by invoice No. 42688 on 3-3-1966 to the customer. The customer returned
the goods on 2-9-1966 and it was brought to account on the same day. A credit note was also issued. On 25-10-1966 the assessee claimed
refund in his monthly return for September 1966. On 25-1-1969, the assessing authority rejected the claim. On appeal by the assessee, the
Appellate Assistant Commissioner also rejected the claim on the ground that the claim was made beyond six months, as provided for u/s 13(5) of
the Tamil Nadu General Sales Tax Act, 1959, hereinafter referred to as the Act. The Tribunal also dismissed the appeal of the assessee. Hence the
revision by the assessee against the order of the Tribunal.
The sale was on 3-3-1966 and the return of the goods by the customer was on 2-9-1966. In the monthly return for the month of September
filed on 25-10-1966, in relation to assessment year 1966-67, an adjustment of tax was claimed. Section 13(5) of the Act, introduced by the Tamil
Nadu Act 15 of 1964, before its amendment by Tamil Nadu Act 31 of 1972, ran as follows:
Where a dealer has refunded the price of articles returned by customers together with the tax collected from such customers in respect of the sale
of such articles and where the amount representing the price refunded by the dealer is included in his turnover, the dealer shall be entitled to claim
deduction of the tax levied in respect of such sale, within a period of six months from the date of sale by adjustment in the assessment and the final
assessment shall be completed accordingly, but such dealer shall not be entitled to claim any adjustment or refund of tax in respect of the sale of
such articles after the expiry of the said period of six months.
This sub-section was further amended by the Tamil Nadu Act 31 of 1972. whereby for the words ''within a period of six months from the date of
sale'', the words ''within such period as may be prescribed and for the words ''the said period of six months'', the words ''the period so prescribed''
were substituted. The amendment by Act 31 of 1972 is not relevant for our discussion and need not be taken any further note of.
If the case is to be decided on a reading of Section 13(5) alone, the dealer shall be entitled to claim deduction of the tax only within a period of
six months from the date of sale. The deduction of the tax levied may be by adjustment in the assessment and the final assessment may be
completed accordingly. But the dealer shall not be entitled to claim any adjustment or refund in respect of sale of articles after the expiry of the
period of six months. On the ground of failure to satisfy this condition, the claim for deduction has to be dismissed. From the subsection it is also
clear that the claim for deduction may be by adjustment in the assessment and the final assessment shall be completed accordingly. This would
mean that the return had been submitted, but the final assessment had not been made. But, on no ground, the dealer will be entitled to claim any
adjustment, or refund of the tax, after the expiry of six months from the date of sale. As the section in very positive terms denies any claim for
deduction after six months from the date of sale and emphasises that no adjustment or refund of tax can be made after the expiry of a period of six
months from the date of sale, in the concluding portion of the sub-section, no refund is allowable in the present case.
But the reference to a Full Bench is necessitated as a Bench of this court in Madras Radiators and Pressings v. State of Tamil Nadu 37 S.T.C.
123 : (1976 Tax LR 1533 , after referring to the provisions of the Act and the scope of Rule 5-A (b) (i) of the Tamil Nadu General Sales tax Rules
1959, hereinafter referred to as the Rules, observed as follows (at p. 1537 of Tax LR).
Thus Section 13(5) and Rule 5-A (b) (i) deal with different rights of a dealer"".
One of the learned Judges who heard the revision felt that because of the express provisions of Section 13(5), the view that the two provisions,
Section 13(5) and Rule 5-A (b) (i) referred to different rights of the dealer might not be correct. The learned Judge was also of the view that the
restriction of a period of six months could not be got rid of by reference to a rule and that in the event of there being a conflict, the rule being a
subordinate legislation, would have to yield to the statutory provisions itself.
We will now proceed to refer to the necessary provisions in the Act and the Rules and the decision in Madras Radiators and Pressings Vs.
State of Tamil Nadu, . Section 2(p) defines taxable turnover. Section 2(q) defines total turnover and Section 2(r) defines turnover. Section 3 is the
charging section. It provides for levy of tax on sales or purchase of goods. Explanation 2 (iii) to Section 2(r) vides that :
Subject to such conditions and restrictions, if any as may be prescribed in this behalf any cash or other discount on the price allowed in respect of
any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover"".
The rule as prescribed under Explanation (ii) to Section 2(r) is Rule 5-A of the Rules. That rule provides that the amount specified in the clauses in
the rule shall not be included in the total turnover of the dealer. Rule 5-A (b) (i) provides that all amounts refunded to purchasers in respect of
goods returned by them to the dealer when the goods are taxable on the amount for which they have been sold shall be excluded in the total
turnover of a dealer provided that the accounts show the date on which the goods were returned and the date on which the the amount for which
refund was made or credit was allowed to the purchaser.
Section 3 refers to total turnover for a year of a dealer and a casual trader, whatever be his turnover for the year, shall pay tax for each year.
The year is defined in Section 2(t) as meaning the financial year. Therefore, when a total turnover, or turnover, or tax is mentioned, it is only for the
financial year. In calculating the turnover, Explanation 1-A to Section 2(r) provides that any amount collected by a dealer by way of tax under the
Act shall not be included in the turnover. Under Explanation 2 (iii) any amount refunded in respect of articles returned by customers shall not be
included in the turnover. So in arriving at the turnover for the year, under Explanation 2 (iii) the amount refunded shall not be included. If the sale
and the refund are in the same year, in computing the turnover, the amount refunded is not included, that is, the amount for which the property was
originally sold, is excluded. As the sale has proved to be abortive, the sale as well as the refund is excluded in the turnover for the year.
Explanation 2 (iii) is subject to rule prescribed in this behalf. The rule prescribed is Rule 5-A. That rule states that ""in pursuance of Explanation (2)
to Section 2(r) of the Act, the amounts specified in the following clauses shall not, subject to the conditions specified therein, be included in the
total turnover of a dealer."" Amongst the amounts that are not to be included in the total turnover is one contained in Rule 5-A (b) (i) which states:
all amounts refunded to purchasers in respect of goods returned by them to the dealer when the goods are taxable on the amount for which they
have been sold, provided that the accounts show the date on which the goods were returned and the date on which and amount for which refund
was made or credit was allowed to the purchaser.
The rule which is in pursuance of Explanation (2) to Section 2(r) enables a dealer not to include the amounts refunded to the purchasers. As the
turnover for the purpose of taxation u/s 3 is to be for the year, the non-inclusion is for the year. That is, Section 2(r), Explanation (2) (iii) and Rule
5-A (b) (i) all relate to the turnover for the year. If both the transactions are not in the same year, that is, if the refund is in the subsequent year the
refund cannot be included in the turnover for the year. As it was felt that the dealer should not be deprived of the refund of tax which he had paid
for the sale, the Legislature intervened and introduced Section 13(5). That section was added by Act 15 of 1964. The objects and reasons for
introducing Section 13(5) are stated as follows:
Under Explanation (2) to the definition of ''turnover'' in Section 2(r), any amount refunded in respect of articles returned by customers shall not be
included in the turnover of a dealer. But when such articles are sold by a dealer at the close of a financial year and customers return those articles
and obtain refund of the price from the dealer some time after the dose of that year, the dealer is unable to exclude the amount of price so refunded
by him from his turnover before he furnishes his return for that year. It is considered necessary that he should be enabled to claim deduction of the
tax included in his assessment in respect of the sale of such articles. It is not however considered necessary that a dealer should have the benefit of
claiming such deduction of tax or refund of such tax for any indefinite period. It is accordingly proposed to amend Section 13 of the said Act, to
allow adjustment of the amount of such tax in the assessment only if the dealer makes his claim within a period of six months from the date of
sale''1. The objects, and reasons above extracted clearly show that as Explanation (2) to Section 2(r) and the rules framed thereunder would not
enable a dealer to exclude the amount refunded by him after the close of that year, it was considered necessary that he should be enabled to claim
deduction of the tax included in the assessment. Six months'' time was granted u/s 13(5). He could claim deduction of tax levied in respect of such
sale within a period of six months from the date of sale. This can be done by adjustment in the assessment and the final assessment can be
completed accordingly. After the final assessment had been completed, he could ask for a refund of the tax in respect of the sale of such articles,
but only within six months from the date of sale. This right to get an adjustment in the assessment will not be available after six months from the date
of sale.
Whatever doubts there might have been before the enactment of Section 13(5) in 1964, the introduction of this sub-section made it clear that
after its introduction reliance could not be placed on the rules to achieve the end of obtaining a tax deduction so far as the amount refunded was
concerned. On this ground alone, it is safe to state that the dealer is not entitled to a refund of tax on the price refunded by him.
We will now proceed to examine the purport of Rule 5-A (b) (i) which a Bench of this court in Madras Radiators and Pressings Vs. State of
Tamil Nadu, held dealt with different rights of a dealer than Section 13(5). The rule is framed, as already stated, in pursuance of Explanation (2) of
Section 2(r) and deals with the contents of a turnover and permits a dealer to exclude from his turnover any amount refunded. The turnover, we
are of the opinion, is for the purpose of levy of tax u/s 3 and it is for the financial year. Normally, it could not be understood as enabling a dealer to
exclude the amount in the subsequent year. The rule does not advance the contention that it confers a different right. The rule enables a dealer not
to include in his total turnover the amount refunded to purchasers. Not included in the total turnover would necessarily mean the turnover submitted
for the year. This was realised by the Legislature and Section 13(5) was enacted to remedy this defect and not for conferring any separate right.
We do not see any reason for holding that Rule 5-A (b) (i) confers a different right that is the right to exclude the amount refunded in the
subsequent year''s return though the refund was not within a period of six months from the date of sale.
Two decisions were relied on by the Bench in Madras Radiators and Pressings Vs. State of Tamil Nadu, , for coming to the conclusion that
different rights were conferred on the dealer. It may at once be stated that both the decisions were rendered when Section 13(5) had not been
introduced. In Devi Films (Private) Ltd. Vs. The State of Madras, , a Bench of this Court was dealing with a sale under a hire purchase agreement.
The machinery was sold to four purchasers for Rs. 68275 by assessee under a hire purchase agreement. The sales were in 1949, 1950 and 1951.
The aggregate amount due under each of those agreements were taken into account in computing the taxable turnover of the assessee in the year of
transaction. The transactions being in the form of hire purchase agreements the sale price was payable in instalments. The agreements provided that
in default of payment of the instalments due, the assessee was entitled to a return of the goods.
It was further provided that when the goods were returned to the assessee, the liability of the purchaser to pay the remaining instalments ceased. In
the assessment year 1955-56 four of the purchasers defaulted payment. The aggregate of the unpaid instalments on all these four transactions was
Rs. 21191-1-6. The assessee claimed that the entire amount of Rs. 68275 which had suffered tax in the previous years should be deducted from
its gross turnover in the assessment year 1955-56 during which the agreements were terminated and the goods were returned to the assessee. The
Court held on a construction of Rule 5 (1) (b) of the Turnover and Assessment Rules, which provided that in determining the net turnover, all
amounts allowed to purchasers in respect of goods returned by them to the dealer shall be deducted, that if an allowance is made against the goods
returned, the deduction can be claimed only in the year in which that allowance has been made and to the real extent of that allowance independent
of the date of the sale. The court also held that the date of the sale decides the inclusion in the assessee''s assessable turnover and the date of
allowance determines the exclusion from the gross turnover under Rule 5 (1) (b).
It may be noted that what had been really allowed to purchasers in that case was the amount of the unpaid instalments of the sale price. The court
held that the assessee is not entitled to claim that the entire sale price has been allowed within the meaning of Rule 5 (1) (b). The court proceeded
to explain that in the case of a transaction of a sale in the form of a hire purchase agreement, where the goods themselves are returned to the seller
and the unpaid instalments of the purchase money ceased to be payable under the terms of the agreement, the seller is entitled to claim under Rule
5 (1) (b) the total of the unpaid instalments as an allowance made within the meaning of Rule 5 (1) (b). In the circumstances of that case, the
amount was included as an allowance. The facts disclose that the unpaid instalments cannot be included in the sale at all. Further as we observed at
the outset, this decision was rendered before Section 13(5) was enacted and therefore it cannot be treated an authority for the proposition with
which we are dealing.
The next case that was referred to is the decision of the Andhra Pradesh High Court in State of Andhra Pradesh Vs. Vauhini Pictures Private
Ltd., Construing Rule 6 (1) (b) (i) of the Andhra Pradesh General Sales Tax Rules, 1957, the court observed that the rule does not state that the
deduction claimed for refund of price in regard to the return of goods should be confined only to a particular period and held that a refund in the
assessment year in respect of sales effected in the year previous to the assessment year would also be within the purview of that rule. This decision
was rendered in the absence of Section 13(5). We are unable to agree with this view.
In Madras Radiators and Pressings Vs. State of Tamil Nadu, , the Bench has taken the view that there is no reason to restrict the operation of
Rule 5-A (b) (i) to a case of refund within the assessment year itself, 35 the rule does not state that the amounts refunded shall be excluded from
the total turnover of the year in which the sale took place. We are unable to accept this view as the turnover is required to be submitted for the
financial year according to the charging section, Section 3. Read in the context of Section 2(r) and Explanation (2), the purport of the rule is clear
in that it only enables the refunded amount to be excluded from the turnover of the year. This was how the definition Section 2(r), Explanation (2)
to the definition and the rules were understood and the Legislature came forward with the amendment enabling the refund of the tax paid within a
period of six months from the date of sale. The wording of Rule 5-A (b) (i) is significant in that it talks of the refunded amount to be excluded from
the total turnover, which would mean that the refunded amount shall not be treated as part of the total turnover and that the refund must be
relatable to the transaction which took place in that year. Though Rule 5-B was introduced by a subsequent amendment in the year 1973. it also
makes the position clear that no claim for adjustment or refund of the tax under Sub-section (5) of Section 13 be entertained, if it is not made
within a period of six months from the date of sale. This should clearly mean that an adjustment of refund cannot be obtained after six months from
the date of sale and Rule 5-A (b) (i) cannot be read in a manner which is inconsistent with this rule.
We are satisfied that the decision in Madras Radiators and Pressings Vs. State of Tamil Nadu, is erroneous. In, any event, after the
introduction of Sec-tion 13(5), the construction put forward by the Bench in the above decision is un-supportable.
V. Ramaswami, J.
I have had the advantage of reading the judgment of my Lord, the Chief Justice. Having given my careful and anxious consideration, I regret
my inability to agree with the conclusion reached by the learned Chief Justice.
The assessee is a dealer who has opted for assessment under Rule 18 of the Tamil Nadu General Sales Tax Rules, 1859 (hereinafter called the
Rules), He had sold under bill No. 4268 dated 3-3-1966 medicine (Methol) for Rs. 69640. This sale was included in the taxable turnover in the
monthly return for the month of March 1S66 relating to the assessment year 1965-66 and the tax of Rs. 1741 relating to the said sale was also
remitted along with the return for the month. The goods sold under this invoice were returned to the assessee on 2-9-1966 and the assesseg
refunded the entire value of Rs. 69640 plus sales tax of Rs. 1741. In the monthly return relating to September 1966., which was filed in tune on
25-10-1966, the assessee claimed adjustment of the tax paid on this sale. The assessing officer, however, in the final assessment under Rule 18 (6)
relating to the assessment year 1966-67 rejected this claim for adjustment on the ground that u/s 13(5) of the Tamil Nadu General, Sales-tax Act
1959 (hereinafter called the Act), the assessee would not be entitled to claim any adjustment of refund of the tax in respect of the sale of such
articles after the expiry of the period of six months from the date of sale and that the assessee had claimed the adjustment only in the monthly return
filed on 25-10-1966 in respect of the turnover relating to September 1966 and that therefore the adjustment was not made within six months from
the date of sale, namely, 3-3-1966. This order of the assessing authority was confirmed in appeal by the Appellate Assistant Commissioner and
the Sales-tax Appellate Tribunal also agreed with this view.
Under Rule 15, every dealer who is liable to submit a return unless he has elected to be assessed under Rule 18, shall on or before the 1st day
of May every year submit to the assessing authority a return in form A. 1, showing the actual total and taxable turnover in respect of the previous
year. Under the Sales-tax Act the assessment year is the financial year, that is the year ending with 31st March. On receipt of such return, the
assessing authority, if he is satisfied that the return is correct and complete, finally assesses on the basis of the return and determines the tax
payable. In cases where he considers the return to be incorrect or incomplete he makes assessments according to ''best judgment'' basis. En cases
where the assessee had opted to be assessed by the method described in R. 18, the assessee had to submit a return in form A-2, on or before the
25th of every month in respect of the turnover for the preceding month. It may be seen from Form A. 2 and the relevant rules that the return should
specify the total turnover, the turnover on which exemption is claimed, the taxable turnover, the tax due on the taxable turnover, the amount
actually collected by way of tax and the tax paid. Along with this return, the assessee shall also send a cheque or postal order for the amount of tax
due as per his return or a receipt for payment of the tax in a Government treasury.
The return so filed for each month is provisionally accepted under Clause 3 of Rule 18. For the monthly return so submitted without a treasury
receipt or cheque for the full amount of tax payable, the assessing authority shall provisionally assess tax payable for the month on the basis of the
return and shall serve upon the dealer a notice in Form B-2, and the dealer shall pay the sum demanded therein. After the close of the year in
which the said monthly provisional assessment has been made, the assessing authority shall, after such scrutiny, as he considers necessary and
satisfying himself that the monthly returns filed are correct and complete, finally assess under a single order on the basis of the returns and
determine the tax or taxes payable under the Act for the year to which the returns relate. The provisions relating to the refund of any amount in
respect of goods returned by customers will have to be understood with reference to this scheme of assessment.
Prior to the introduction of Section 13(5) in the Act, the legal position as per the provisions of the Act and the rules and as understood by this
court in respect of the amount refunded for articles returned by the customers may now be noticed. u/s 3 of the Act every dealer shall pay tax for
each year at a certain percentage of his taxable turnover. Turnover means the aggregate amount for which the goods are bought and sold and the
taxable turnover means the turnover on which the dealer shall be liable to pay tax as determined by the provisions of the Act and the rules. Taxable
event is the sale and the levy of tax is on the ''amount'' for which the goods are bought or sold. Once a sale takes place the amount for which the
goods are sold becomes thus taxable. But the Act provided for certain relief in cases where the dealer had to refund any amount in respect of
articles returned by the customers. Explanation (2) (iii) to the definition of ''turnover'' in Section 2(r) of the Act provides . that, subject to such
conditions and restrictions, if any, as may be prescribed in this behalf, any amount refunded in respect of articles returned by customers shall not be
included in the turnover. In pursuance of this Explanation, Rule 5-A specifies the conditions and restrictions.
The relevant portion relating to refund is Rule 5-A (b) (i). Under this provision, all amounts refunded to purchasers in respect of goods returned by
them to the dealer when the goods are taxable on the amount for which they have been sold shall not be included in the total turnover provided that
the accounts show the date on which the goods were returned and the date on which and the amount for which refund was made or credit was
allowed to the purchaser. Neither the Explanation to Section 2(r) nor Rule 5-A (b) made the sale of the article which was the subject matter of the
return later on not a taxable sale by reason of such return only. Nor the definition of ''sale'' in Section 2(n) excluded such sales. Therefore, once a
sale takes place the entire amount paid or payable in respect of the same is liable to be included in the turnover. Under the Explanation read with
Rule 5-A (b), the amount refunded in respect of articles returned by customers ''shall not be included'' in the turnover,
In cases where the assessee has opted to be assessed under Rule 18, as already stated, he has to submit a return in form A-2 for every month
on or before the 25th of the succeeding month and has also to remit the tax payable as per the return. Thus, when a sale takes place in any
particular month, he had to include that sale in the taxable turnover in the monthly return and pay tax on it. If the return of the article was in any
period subsequent to the sale but within the same assessment year the assessee would be entitled to deduct the same from the total turnover on
which he is finally assessed under a single order for the assessment year under Rule 18 (6), irrespective of the fact that the return was within six
months or beyond the period of six months from the date of sale. No question of excluding the sale itself from the original monthly return could
arise. In respect of an assessment under Rule 18, the words ''shall not be included in the turnover'' in Explanation (2) to Section 2(r) and Rule 5-A
will, therefore, have to be understood only as a deduction from the total turnover.
In cases where the sale and return were in the same assessment year, when a dealer submits his retuen under Rule 15, the amount for which it
was sold is included in the turnover and the amount refunded is deducted from the aame before arriving at the total turnover of the dealer because
the gale is still a taxable sale in spite of the refund made on return of the article, in such a case, it is also immaterial whether the return of the article
and the refund of the money was within a period of six months from the date of sale. Thus, even in reapect of the assessment under Rule 15, the
words ''shall not be included in the turnover'' will have to be understood only as a deduction from the total turnover.
As already stated u/s 3 of the Act, every dealer shall pay tax at a certain percentage of his taxable turnover. Turnover is the amount for which
goods are sold or purchased and taxable turnover is determined after certain deductions from the total turnover as per the rules. The amount
refunded is excluded not because of the sale and return took place in the same year but because Section 2(r) Explanation (2) allowed the amount
refunded in respect of any goods returned to be deducted from the turnover of that year. The deduction from the turnover was not conditioned
upon the inclusion of the amount for which the goods were sold in the turnover, bat conditioned upon factual refund made on return of the goods
and to the extent of amount refunded- Thus, what was relevant under Explanation (2) to Section 2(r) and Rule 5-A (b) is the date of return of the
article and refund of the money and not the date of sale. It may also be noted that the amount that ia to be deducted from the turnover is not the
entire price which the dealer receives on the sale from the customer, but it is only so much of the amount that was refunded by him when the
articles were returned by the customer. The two amounts may differ, but so far as the assessment is concerned, only that amount that was refunded
had to be deducted.
Thus in terms of the provision of the Act and the rules, the amount refunded has to be deducted only from the turnover of the year in which the
refund was effected and it is immaterial when the sale took place and whether the price for which the goods were originally sold was included in
the turnover or not. Thus, in eases where the sale and the return of the article were in two different assessment years, the assessee, as the
provisions stood then, could claim a deduction of the amount refunded only in the assessment year in which the amount was refunded. He was not
enabled to claim a deduction of the same in such a case in the assessment year in which the sale itself took place.
Let us now consider the decisions rendered with reference to the provisions then existing prior to the introduction of Section 13(5) of the Act.
In Devi Films (P) Ltd. v. State of Madras, 12 STC 274 (Mad), a Division Bench of this Court had to consider a similar question. The facts in that
case are as follows.--The assessee in that case sold some cinema machinery and apparatus under hire purchase agreements. The aggregate of the
amount due under these agreements was Rs. 68275. In computing the taxable turnover of the assessee the aggregate amount was included in the
year of the transaction and was assessed to sales tax. This was for the reason that the hire purchase agreements were considered to be sales and
the tax is payable on the aggregate amount for which the goods were sold, even though the consideration for the same was payable in future. When
the purchaser defaulted in payment of the instalments, the assessee got a return of the goods. This default and return of the goods was in the
assessment year 1955-56 long subsequent to the year of the transaction. The aggregate of the unpaid instalments in respect of these transactions
was Rupees 21,191-1-6.
The assessee claimed that since there was a return of the article and default in payment of the further instalments the entire amount of Rs. 68275
which had suffered tax in the previous year should be deducted from its gross turnover in the assessment year 1955-56, during which period the
agreements were terminated and the goods returned to the assessee. In support of this contention, the assessee relied on Rule 5 (1) (b) of the then
Turnover and Assessment Rules, which was in pari materia with Rule 5 A (b) of the present rules. It may be mentioned that explanation 2 (iii) of
Section 2(r) was also in the statute book at that time. It was held by this court that the assessee was entitled only to that amount which represented
the unpaid sale price and not the aggregate amount of Rupees 68275 because it was only the unpaid sale price that would be the amount for which
credit was allowed to the purchaser and the remaining consideration had already been received and not repaid by the dealer. It was also held that
it was the year in which the refund was made or credit was allowed for which relief could be obtained and not in the year of sale. In so holding, a
Division Bench of this court observed -
The goods sold by the assessee were returned to the seller. It is true there was a considerable interval between the sale and the return of the
goods, but the length of the interval is, in our opinion, not a relevant factor at all in deciding whether the requirements of the rule have been satisfied
by a given assessee. If an allowance is made against the goods returned the deduction can be claimed only in the year in which that allowance has
been made and to the real extent of that allowance, independent of the date of the sale. The rule itself makes that clear. The date of the sale
decides the inclusion in the assessee''s assessable turnover. The date of the allowance determines the exclusion from the gross turnover under Rule
5 (1) (b).
A similar view was also taken by the Andhra Pradesh High Court in State of Andhra Pradesh Vs. Vauhini Pictures Private Ltd., , with regard
to the effect of Rule 6 (1) (b) (i) of the Andhra Pradesh General Sales-tax Rules 1957, which also contained a provision similar to Rule 5-A (1) (b)
of the Tamil Nadu General Sales-tax Rules. In that case also some publicity materials were sold to the exhibitors in the assessment year 1957-58,
but they were returned in the assessment year 1958-59 and the sale price was refunded by the assessee to the purchasers. Relying on the rule, the
assessee claimed a deduction of the amount refunded in the assessment year 1958-59. A Division Bench of the Andhra Pradesh High Court
allowed the claim and held :
We find that Rule 6 (1) (b) (i) discreetly omits to mention that the deduction claimed for refund of price in regard to the return of goods should be
confined only to a particular period. All that rule mentions is that when goods are taxable on sales, the amounts allowed to purchasers in respect of
the goods returned by the purchasers to the dealer is an allowable item. Further on, the condition laid down in that rule (despite repetition) says
''provided the accounts show the date on which the goods were returned and the date on which and the amount for which refund was made.'' It
looks to us that the mention of the date is not with a view to find out when the claim for deduction has arisen, but only to make it feasible for the
taxing authority to verify when the goods were got by the seller and how refunds were made in respect of them. Therefore, to have to read into this
fact that the date of the return of the goods is to be specified by the assessee and that a revaluation in respect of the time of the transactions is also
implied with a view to restrict deductions in the year of assessment, is not warranted by the language of this rule. Nor can it be said that this rule
was contemplating the taking into account of the return of the goods only in the asessment year and not in regard to goods sold out previously but
were returned in the assessment year.
The resultant position is, when a sale takes place the amount for which it is sold or purchased will have to be included in the turnover in the year in
which the sale took place. By reason only of the return of the article subsequently and refunding of any amount in respect of such return, the sale
itself does not cease to be a taxable sale nor the amount for which it was sold ceased to be a turnover of the assessee. In the case of refund in
respect of articles returned by the customers, that portion of the amount that was refunded will have to be deducted from the turnover of the year
in which the amount was refunded. It was not permissible for an assessee when the sale and return were in different assessment years, to claim
deduction and relief in the year of sale itself. When such was the position Section 13(5) of the Act was introduced by Madras Act 15 of 1964.
That sub-section as originally introduced reads thus -
(5) Where a dealer has refunded the price of articles returned by customers together with the tax collected from such customers in respect of the
sale of such articles and where the amount representing the price refunded by the dealer is included in his turnover, the dealer shall be entitled to
claim deduction of the tax levied in respect of such sale, within a period of six months from the date of sale by adjustment in the assessment and the
final assessment shall be completed accordingly but such dealer shall not be entitled to claim any adjustment or refund of the tax in respect of the
sale of such articles after the expiry of the said period of six months.
As Craies on Statute Law puts it, the most firmly established rules for construing an amending enactment are those laid down by the Barons of the
Exchequer in Heydon''s case 1584-3 Co-Rep. 7a, which have been continuously cited with approval and acted upon in a number of cases. They
are as follows:
What was the law before the making of the Act; 2. What was the mischief and defect for which the existing law did not provide; 3. What
remedy the Legislature had resolved to cure; and 4. The true reason of the remedy. The reason for the addition of Sub-section (5) of Section 13 of
the Act is explained in the Statement of Objects and Reasons to the amending bill and it reads as follows :
Under Explanation 2 to the definition of ''turnover'' in Section 2(r), any amount refunded in respect of articles returned by customers shall not be
included in the turnover of a dealer. But when such articles are sold by a dealer at the close of a financial year, and customers return those articles
and obtain refund of the price from the dealer sometime after the close of that year, the dealer is unable to exclude the amount of the price so
refunded by him from his turnover before he furnishes his return for that year. It is considered necessary that he should be enabled to claim
deduction of the tax included in his assessment in respect of the sale of such articles. It is not, however, considered necessary that a dealer should
have the benefit of claiming such deduction of tax or refund of such tax for any indefinite period. It is accordingly proposed to amend Section 13 of
the said Act to allow adjustment of the amount of such tax in the assessment only if the dealer makes his claim within a period of six months from
the date of sale"".
It is seen from this that the Legislature intended to provide for that which was not found in the earlier enactment, that is to permit an assessee to
claim a deduction of any amount refunded from the turnover of the assessment year in which the sale took place even though the refund was made
in subsequent financial year. The provision in Section 13(5) also shows that it applies only to a case where the assessee wants to claim a deduction
of the amount refunded from the turnover of the year in which the sale took place, even though the refund was in the subsequent year. The words
''the amount representing the price refunded by the dealer is included in his turnover"" in Section 13(5) clearly show that the turnover referred to
therein is the turnover of the year in which the sale took place. The relief u/s 13(5) could be claimed by the dealer only if the claim for deduction of
the tax levied in respect of such sale is made within a period of six months from the date of sale. A curious result flowed from this provision, as
seen below. Even if the sale and the return were made in the same assessment year, in the case of a person who had opted to be assessed under
Rule 18, he was deprived of the relief found in Explanation (2) to Section 2(r), because if the sale was in April il would have been included in the
monthly return filed in the subsequent month and on that basis it would have been provisionally assessed.
Though the return and refund itself might be within six months, that is, in October, since the monthly return in respect of October is to be submitted
in November, the assessee, on a strict interpretation of Section 13(5) was not entitled to claim deduction of the tax by adjustment. In the case of
an annual return under Rule 15 also the assessee would not be entitled to claim deduction though the sale and return were in the same year since
Section 13(5), as it was originally enacted, required the claim for deduction or adjustment to be made within a period of six months from the date
of sale. In all cases where the sale took place during the period from the 1st April and 30th September of any particular year, the assessee was not
able to invoke Section 13(5) as the return for the year had to be filed after the end of the year and before the 1st of May. It is to get over this
difficulty, Section 13(5) was again amended by Tamil Nadu General Sales-tax (Second Amendment) Act, 1972, by substituting the words ''within
such period as may be prescribed'' for the words ''within a period of six months from the date of sale'' and Rule 5-B was also introduced in the
rules. Under Rule 5-B such claim for adjustment or refund of tax could be made within a period of six months from the date of sale or before the
date of final assessment whichever is later. Under the provisions of Section 13(5) and Rule 5-B, as they stand now, if the sale and the return take
place in different assessment years, the assessee could claim a deduction of the amount refunded from turnover of the year in which the sale took
place before the date of final assessment for that year.
Even il the assessment bad been completed, he could ask for an adjustment or reopening of the assessment or rectification of the assessment if he
makes a claim for such adjustment or rectification within a period of six months from the date of sale itself. This is the position both in regard to.
assessment under Rule 15 or an assessment under Rule 18. Thus, Section 13(5) is not intended to cover a case where the assessee claims a
deduction of the amount refunded in the year in which he refunded the money. It is intended to cover a case when the assessee claims deductions
of the amount refunded from the turnover of the year in which the sale took place. The previous provision enabling the assessee to claim deduction
u/s 2(r), Explanation 2 (iii) read with Rule 5-A (b) in the year in which the refund was effected is thus not affected either by express provision or by
implication. It may also be pointed out that it is not correct to state that it is Rule 5-A (b) that enables an assessee to deduct the amount from the
turnover. It is provided for in Section 2(r) Explanation itself and Rule 5-A only prescribes the condition under which such deductions could be
claimed, as Explanation 2 itself states that the deduction could be made only subject to such conditions and restrictions as may be prescribed.
Before parting with this case, I may also add that, assuming that the view of the learned Chief Justice is also possible, under the well-known
principle where two interpretations are possible that interpretation which Is beneficial to the assessee will have to be adopted in construing a taxing
statute. Even under this rule, I am of the view that decision in Madras Radiators and Pressings v. State of Tamil Nadu 37 S.T.C. 123 : 1976 Tax
LR 1533 does not require any reconsideration.
I am therefore unable to share the view that the earlier decision of this Court in Madras Radiators and Pressings v. State of Tamil Nadu 37
S.T.C. 123 : 1976 Tax LR 1533 is erroneous or unsupportable on the provisions of the Act.
Balasubrahmanyan, J.
I have had the advantage of perusing the judgments of my Lord the Chief Justice and of my learned brother V. Ramaswami J. They have
expressed diametrically opposite views on the scope and effect of Section 13(5) of the Tamil Nadu General Sales-tax Act, 1959. I agree with the
former view and disagree with the latter. In these events, I propose to say a few words myself on the question, explaining why I prefer the one
view to the other.
Section 13(5) deals with the tax treatment of a sales return for purpose of assessment. The Act imposes a tax on sales of goods. The charge to
tax, in terms of legislative competence as well as in terms of some of the provisions in the Act itself, attaches the moment the sale is effected. This
idea is sometimes put differently by saying that in sales tax the taxable event is the sale. But the Act has also to look to the process of assessment
and collection of this tax. Hence it adopts the principles of aggregation fami-liar to fiscal measures and makes the assessment to tax a yearly
assessment by aggregating all sales that a tax payer makes in the course of that year. The aggregate of the sales in the fiscal period of one year is
called the turnover. This is the reason why sales-tax also goes by the other appellation, turnover tax. It would be correct to say that the tax is at
once a tax on the sales and a tax on turnover. There are sections in the Act which are oriented towards the one conception of aggregation; there
are other sections which are founded on the other idea of severally of transactions. It is unnecessary for me to refer to all the relevant sections that
illustrate the scheme of the Act which I have outlined. Section 13(5) is one of those provisions in the Act which takes up for special treatment an
individual sale, which forms part of the aggregate of sales called turnover.
Any transaction which is sale and is part of the taxable turnover of a year, gets taxed, and must get taxed, in the assessment for that year. The
legislature, however, as a popular legislative body took note of the realities of commercial dealings, because the tax imposed under the Act is not a
tax on sales of all and sundry people, but only a tax on the turnover of a dealer, all non-dealer''s sales being excluded from the ambit of the charge,
by definition. It often happens in the business world that a customer who has purchased a commodity from a dealer might wish to return it for some
reason, and the dealer may also be agreeable to that course and be willing to refund the price. If both the parties act according to their second
thoughts in the manner aforesaid, what happens is a sales return, as it is described in the fiscal jargon. But this does not abrogate the sale, or render
it retrospectively, a nullity. On the contrary, it takes note of the circumstances that the earlier Bale is an accomplished fact. Only, the parties agree
to put themselves in the former position, the status quo ante, by consensual overt acts--the one returning the goods and the other refunding the
price.
Technically, therefore, on the theory that sales tax attaches at the moment of sale, there is no call for making any provision in the taxing Act for
giving any relief to the dealer whose sale, which is subject to a subsequent return, chargeable to tax. But, as I said, since the Legislature felt it
expedient to take note of commercial realities even while enacting a strictly fiscal measure, it made provision for excluding from the taxable
turnover the amount refunded by the dealer to the customer as respects a sales return. Sales return, as such, has thus no place in the scheme of
taxation excepting that it can be traced to the particular sale of which it is a return. Section 13(5) makes this clear by enacting that where a dealer
has refunded the price of articles returned by customers and where the price refunded by the dealer is included in his turnover, the dealer shall be
entitled to claim deduction of the tax levied in respect of such sale. The words of the section are not capable of being misunderstood. They hitch
the deduction of tax to the sale in question. There can be no question of considering a sales return all by itself, as if that, per se, were the subject of
special tax treatment. The other provision in the section, which is very important to the present case, is that which imposes a strict time limit for the
making of any claim by the tax payer for deduction of the tax referable to the sale in question. While the Act permits the dealer to get a deduction
of tax in respect of the sales return, it insists that the claim for such deduction should be made within six months from the date of the sale.
If, by then, the assessment of the turnover in which the sale is included, is not completed, then an adjustment will be made in the computation of the
taxable turnover by removing the amount covering the sales return from the figure of turnover, and the year''s tax will be calculated on the net figure
after exclusion of the amount of sales return from the turnover. The section having provided the six months time limit for deduction of tax in respect
of sales return, logically makes provision for cases where, even during the subsistence of the six months'' time limit, the final assessment happens to
have been already completed. In such cases, the section entitles the dealer to obtain relief by way of refund of the tax levied in the already
completed assessment, but always insisting that the claim for deduction of tax must be filed before the assessing authority within six months of the
sale.
1 do not think the scheme and structure of the section admit of any doubt. I further feel that in the matter of the tax treatment of sales returns
this provision must be taken as a complete code in itself. This conclusion must be derived not only because there is no other section in the Act
which has anything to say on the subject, but also because of enactment of an inexorable time-limit in the concerned provision itself. The idea of a
time-limit for exercise of a right or privilege is to say that beyond the time-limit the right or privilege cannot be exercised. Otherwise, the Legislative
purpose of imposing a bar would be stultified. For these reasons, without referring to the history of the legislation or any other factors, I am of the
view that the claim for deduction of tax for a sales return cannot be made at any time, after the expiry of six months from the relative sale itself. I
am further of the view that the claim appertains, snd must appertain, only to the particular assessment of the turnover in which the sale itself figures.
Reference was made to Rule 5-A (b) (i) of the Rules made under the Act. Reference was also made to the definition of the expression ''taxable
turnover'' and ''turnover'' in the interpretation clauses in the Act. The former term is defined as the turnover on which a dealer shall be liable to pay
tax as determined after making such deduction from his total turnover and in such manner as may be prescribed. The latter expression ''turnover''
has a definition to which are appended explanations. Explanation (iii) says that, subject to the rules in this regard, any amount refunded in respect of
articles returned by customers ''shall not be included'' in the turnover. Rule 5-A (b) (i) refers to all amounts refunded to purchasers in respect of
goods returned by them to the dealer, and provides that the said amounts shall not be included in the total turnover of the dealer.
From the words ''shall not be included'' occurring in the definition in Section 2(r) read with Explanation (in) and Rule 5-A of the Rules, it is
sought to be argued that whenever there is a sale return the amount covered by that return can be deducted from the turnover for arriving at the
taxable turnover. It is principally on the basis of these words that the view has been expressed in the judgment of my learned brother, V. Rama-
swami J., These words, it is said, warrant the taxation of a sale in one year''s assessment and the exclusion of the sales return in respect of that very
sale in a subsequent year''s assessment. With respect, I do not see how the words point to his conclusion. Ramaswami J. has observed that the
words ''shall not be included'' only mean that to the extent of the sales return there shall be a ''deduction'' from the turnover. In my view, the
concept of a deduction in the sense of an allowance such as we know in the realm of Income Tax for business expenditure, is alien to the scheme
of the Tamil Nadu General Sales-tax Act. ""Shall not be included"" does not mean shall be deducted. Nor does it mean, shall be excluded. In my
opinion the words ""shall not be included"" convey the idea that but for the provision for non-inclusion the thing would be included in the turnover.
Samuel Goldwyn the movie Mogul in a famous Goldwynism asked his host to ''include me out'' from the list of invitees. Adopting this Goldwynism
I would say that a sale return is such a return as might be included out of the taxable turnover. In other words, only those sales returns whose
relative sales, but for their non-inclusion are includable in the very assessment of the turnover concerned can be kept out of the taxable turnover. It
follows, therefore, that even on the basis of the statutory definitions of turnover and the pertinent rule relating to non-inclusion of sales returns, there
is no warrant for the conclusion that a sales return may be claimed in any assessment year, provided the return is made in that year.
In the earliest Bench case on the subject in Devi Films (P) Ltd, v. State of Madras, (1961) 12 S.T.C. 274 (Mad) which was under the earlier
Sales-tax Act of 1939, the position was somewhat epigram-matically put: the year of assessment is the year of sale, but the year of exemption for
sales return is the year of return. The concerned rule that the Bench had to construe employed the expression ''shall be deducted from the gross
turnover''. The words we are dealing with are different, as I have sought to show in the foregoing paragraphs. It is not necessary, and no purpose
would be served, to examine whether Devi Films (P) Ltd. v. State of Madras, (1961) 12 S.T.C. 274 (Mad) even on the language of the statute or
the statutory rules as they then existed, was correctly decided in the epigram I have referred to above. It is necessary to emphasise that under the
1959 Act, after the inclusion of Section 13(5) all the law and principles for the tax treatment of sales returns must be found only in that section and
nowhere else in the Act. Rule 5-A cannot bear the meaning sought to be given to it that irrespective of the bar of limitation u/s 13(5) a dealer
would he entitled to tax deduction in respect of a sales return. To permit a dealer to obtain a deduction, as it is called, from a later year''s assessing
turnover for a sales return . appertaining to an earlier year''s sale would amount to a failure to tax a taxable sale on the last year.
The above principle can be borne out by an illustration. Sales of commodities A, B, C and D of Rs. 10,000 each are made in 1975-76. In
1976-77 there are sales of E, F, G, and H of Rs. 10,000 each. In that year commodity A is returned and the dealer refunds the price to the
customer. In terms of Section 13(5) the claim for the sales return must be made in 1975-76 assessment to which the sale of A appertains. To say
that in 1976-77 Rs. 10,000 can be deducted would be equivalent to leaving out of account from proper charge of tax any one of the sales of E, F,
G and H. I do not find any warrant in the words of Rule 5-A (b) (i) to desist from taxing a sale which falls within the charge. The exclusion of a
sales return must, therefore, be strictly confined to the very year in which the sale itself has been effected and would otherwise have had to be
included and charged to tax.
This is the principle and provision in Section 13(5). When the section uses the words ''deduction of tax'', which, so far as I can see, is a new
phrase in sales-tax literature, it is implicit that only that tax with which the sale itself is charged, or would be charged, is the subject of tax relief. It is
in this context that Section 13(5) provides for adjustment of tax in the assessment in cases where the claim for deduction of tax is made before the
assessment is over, although within six months of the turnover. It is on the same principle that Section 13(5) provides for actual refund of tax--
another innovation introduced by the Amendment Act of 1964--whenever the claim is made after the sale gets completed, but within six months of
the sale.
It was suggested that Section 13(5). occurring as it does in the section marginally noted as ''provisional assessment'', must be confined to
provisional assessments, A marginal note, made by the legislative draftsman before the amendment, but omitted to be altered suitably after
amendment, cannot be a proper basis for statutory construction. Commissioner of Income Tax/excess Profits Tax, Bombay City Vs. Bhogilal
Laherchand, and Commissioner of Income Tax, Bombay Vs. Ahmedbhai Umarbhai and Co., Bombay, . The words of Section 13(5) are clear
enough, and I have already explained why they should be regarded as a complete Code in themselves on the subject of tax relief to sales returns,
Reliance was placed on a supposed rule of construction of taxing Acts that where two views are possible of a fiscal provision the more
favourable to the tax payer should be held to be the correct interpretation. As a student of revenue law, I have never been able to understand the
rationale behind this doctrine of interpretation of fiscal enactments. In any case, I cannot accept the validity of a doctrine of judicial construction the
last resort of which is doubt, not conviction. Recent trends in tax decisions show the decline of this theory of interpretation. Forensic ingenuity
might be capable of raising a cloud of doubt in the most unequivocal of taxing provisions. But whatever doubts might be created in other people''s
minds, the court at any rate must be in a position to make up its mind in every case. That is because, while there may be a possibility of more than
one construction being mooted of the same taxing provision, there can only be one view that can be correct. In any case, in expressing my views
aforesaid I have not been assailed by any doubts whatsoever.
For the above reasons, I concur with the conclusion expressed in the judgment of my Lord, the Chief Justice and differ from that expressed by
my learned brother, V. Ramaswami J. In my view, the Division Bench decision in Madras Radiators and Pressings v. State of Tamil Nadu, 37
S.T.C. 123 : 1976 Tax LR 1533 is wrongly decided.
ORDER
Kailasam, C.J.
In accordance with the opinion of the majority of the Full Bench, it is held that Madras Radiators and Pressings Vs. State of Tamil Nadu, has
been erroneously decided.
In the result, the tax case is dismissed. There will be no order as to costs.