Case: Jain Jari Stores, Madras Vs. State of Madras

SHAH, J. 1. The appellant - hereinafter referred to as "the assessee" - is a registered dealer under the Madras General Sales Tax Act, 1939, and carries on the business of buying and selling cloth in the town of Madras. For the assessment year 1956-57 the Deputy Commercial Tax Officer assessed, for purposes of sales tax, the turnover of the assessee from sale of cloth at Rs. 11, 33, 355-12-6. This turnover included a sum of Rs. 7, 88, 352-0-9 which represented turnover in respect of sale of goods purchased by the assessee from dealers not residing within the State of Madras. The assessee claimed that when he sold the goods, he was not the first dealer, and he was on that account exempted from liability to pay sales tax on turnover in respect of goods purchased from the non-resident dealers. The Deputy Commercial Tax Officer rejected the contention of the assessee and the order was confirmed in appeal by the Commercial Tax Officer and the Sales Tax Appellate Tribunal. A revision application filed against the order of the Sales Tax Appellate Tribunal before the High Court of Madras also proved unsuccessful.2. In this appeal the assessee relying upon section 3(2) of the Act claims exemption from liability to pay tax on a turnover of Rs. 7, 88, 352-0-9. To appreciate the contention raised by the assessee it is necessary to set out certain material provisions of the Act. "Dealer" is defined in section 2(b) of the Act as meaning "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 other valuable consideration. Explanation. - A Hindu joint family, or any association, co-operative society, or club or any firm, which, or a commission agent broker, del credere agent, auctioneer or any other mercantile agent, by whatever name called, who carries on such business, is a dealer within the meaning of this clause;"Section 3(2) of the Act at the material time provided : "On the first sale of any of the goods mentioned below by a dealer who is not exempt from taxation under the next succeeding sub-section, the dealer shall pay a tax at the rate specified as applicable thereto; and the tax shall be paid by the dealer on his turnover in each year relating to such goods and shall be in addition to the tax to which he is liable under sub-section (1) on his total turnover for the year : Provided that, in the case of goods imported into the State of Madras either from outside the territory of India or from any other State in India, the tax shall be levied on the first sale effected in the State of Madras by a dealer who is residing in the State of Madras and who is not exempt from taxation under the next succeeding sub-section, after the import of the said goods into the State of Madras. 3. Section 14-A provided : "In the case of any person carrying on the business of buying or selling goods in the State but residing outside it (hereinafter in this section referred to as a non-resident), the provisions of this Act shall apply, subject to the following modifications and additions, namely (i) In respect of the business of the non-resident, his agent residing in the State shall be deemed to be the dealer. (ii) The agent of a non-resident shall be assessed to tax or taxes under this Act at the rate or rates leviable thereunder in respect of the business of such non-resident in which the agent is concerned, irrespective of the amount of the turnover of such business being less than the minimum specified in section 3, sub-section (3). (iii) * * * (iv) * * * (v) * * *" In support of his plea the assessee relied upon the affidavit of S. Roopchand affirmed on March 30, 1959, in which it was recited in paragraphs 5 and 6 that :" 4. In all these cases the nature of the transactions would be as follows : The branch or agent of the non-resident seller would offer the non-residents goods for sale to the appellant-firm. After the price was settled, the agent or branch, as the case may be, would communicate the order to the non-resident seller, who would then despatch the goods. The sale price was never paid in advance. The goods were never inspected by the appellant-firm until actual delivery was taken by them in Madras State. The railway receipts were taken out by the non-resident showing himself as consignor as well as consignee. The receipts would bear blank endorsement and would be handed over to the appellant-firm by the agents or branches of the non-resident sellers. In many cases, the railway receipt is sent to the non-residents bank and payment would be made at or subsequent to the time when the railway receipt is handed over to the appellant-firm and never before. 5. Under these circumstances it is submitted that property in the goods passes only in Madras State when delivery is taken by the appellant-firm, that the non-resident seller would be the first seller after import in the State of Madras and since the agent residing in the State of Madras concerned with the business of the non-resident dealer will be deemed to be the dealer with respect to those sales, the provisions of section 3(2) will be attracted and it will be the non-resident sellers alone who will be liable to pay the tax." In order to substantiate his claim to exemption from liability to pay tax, the assessee had to establish (i) that the goods were imported within the State of Madras, (ii) that after the goods were imported they were sold to him by a dealer who was residing within the State of Madras, and (iii) that the sale to him was within the State of Madras. The assessee said that the goods in respect of which he claimed exemption were imported goods, that the agents of the non-resident owners of the goods were residing within the State of Madras and that the agents were dealers by virtue of the explanation to section 2(b) and by virtue of section 14-A(i), and the agents sold the goods to him after the goods were imported : those sales, he says, therefore, constituted first sales within the meaning of the proviso to section 3(2) and any subsequent dealings with the same goods by the assessee were, by the express words of the statute, not within the net of taxation.The High Court rejected the claim of the assessee on the ground that the sale of goods to the assessee was by a non-resident dealer and therefore the sale did not fall within the proviso. The High Court observed that even though the agent of a non-resident seller who negotiated the sale and delivered the documents of title may be a dealer within the meaning of section 14-A(i) "the representative character of the agent with which he is clothed under section 14-A of the Act cannot be read into the first proviso to section 3(2) of the Act to enable" the assessee "to contend that the sale in his favour was the first sale from another dealer in the State." The High Court however assumed that the sale by the non-resident seller took place within the State of Madras and also assumed that the goods had been sold to the assessee after they were imported into the State of Madras. 6. There is no dispute that the goods in respect of which exemption was claimed were imported goods. But to qualify himself for exemption from liability the assessee had to prove that the goods were sold to him in the State of Madras, that they were sold by a dealer who was residing in the State of Madras, and that the sale to him was after the goods were imported. It was not disputed that the agent of the non-resident owner of the goods was residing within the State of Madras, but it is not clear on the record whether the goods were sold after they were imported into the State of Madras, nor that the sale had taken place in the State of Madras. Nor is it clear on the record whether the agent of the non-resident could be regarded as a dealer within the meaning of section 2(b) of the Act. The Sales Tax Appellate Tribunal and the High Court have not recorded any findings on those questions. The mere fact that the owner of the goods purchased by the assessee was a non-resident is by itself not sufficient to dispose of the claim made by the assessee. If the non-resident sold the goods within the State of Madras through commission agent, broker, del credere agent, auctioneer, or any other mercantile agent, who carries on such business, the sale would be by a dealer within the State. If, therefore, the goods were sold within the State of Madras by an agent of the kind mentioned in section 2(b) explanation of the non-resident owner, the agent being resident of the State of Madras, the sale would be deemed to be the first sale, provided the condition about the sale after import of the goods into the State of Madras was fulfilled. Unfortunately no investigation of facts has been made either by the Tribunal or by the High Court on these important questions about the authority of the agent negotiated the sale transactions. They have also not determined whether the property in the goods passed within the State of Madras so as to constitute a sale effected in the State of Madras, nor has it been found whether the goods were sold after they had been imported within the State.It may be observed that a resident agent of a non-resident carrying on the business of buying and selling goods within the State of Madras may, for the purposes of the Act, be deemed by virtue of section 14-A(i) to be "the dealer", and liable to pay tax. But the fiction created by section 14-A(i) making an agent of a non-resident a dealer, for imposing upon him the liability of a dealer, does not make every agent a dealer for all the purposes of the Act within the meaning of section 3(2). To claim exemption under section 3(2) on the plea that he was not the first dealer, the assessee had therefore to prove that the agent of the non-resident who negotiated the sale of goods to him was an agent of the kind mentioned in section 2(b). On this part of the case, there is no finding. 7. In the absence of clear findings recorded by the taxing authorities and the High Court, we are unable to decide this appeal. The averments made by the assessee in paragraph 5 of the affidavit which we have already set out are also vague and indefinite, and in paragraph 6 only a proposition of law is asserted on certain assumptions. 8. The judgment of this Court in M/s. Gilda Textile Agency, Vijayawada v. The State of Andhra Pradesh and Another ([1962] 13 S.T.C. 738.), on which counsel for the assessee relied, does not assist him. In that case M/s. Gilda Textile Agency, who were indenting agents in Andhra Pradesh for cloth merchants residing outside Andhra Pradesh, booked orders, forwarded them to the principals, and received commission on sale of goods despatched to Andhra Pradesh. This Court, agreeing with the High Court, held that the non-resident principals were carrying on the business of selling goods in Andhra Pradesh and that the appellants as their agents were liable to be assessed to tax under section 14-A of the Act. But there is nothing in the present case to show that the non-resident owners of goods were carrying on business of selling goods in the State of Madras through their agents.We are of the view, having regard to the circumstances, that the case should be remanded to the High Court to determine the questions whether the agent of the non-resident supplier was the agent covered by the explanation to the definition of the word "dealer" in section 2(b), whether the property in the goods purchased by the assessee passed within the State of Madras, whether the sale was effected by a dealer resident within the State of Madras, and whether such sale took place after the goods were imported within the State of Madras. The High Court after determining those questions will proceed to dispose of the claim made by the assessee according to law. The High Court may, if it is necessary, call for a finding from the taxing authorities on those questions.

Decision reasoning: 1[ds]6. There is no dispute that the goods in respect of which exemption was claimed were imported goods. But to qualify himself for exemption from liability the assessee had to prove that the goods were sold to him in the State of Madras, that they were sold by a dealer who was residing in the State of Madras, and that the sale to him was after the goods were imported. It was not disputed that the agent of the non-resident owner of the goods was residing within the State of Madras, but it is not clear on the record whether the goods were sold after they were imported into the State of Madras, nor that the sale had taken place in the State of Madras. Nor is it clear on the record whether the agent of the non-resident could be regarded as a dealer within the meaning of section 2(b) of the Act. The Sales Tax Appellate Tribunal and the High Court have not recorded any findings on those questions. The mere fact that the owner of the goods purchased by the assessee was a non-resident is by itself not sufficient to dispose of the claim made by the assessee. If the non-resident sold the goods within the State of Madras through commission agent, broker, del credere agent, auctioneer, or any other mercantile agent, who carries on such business, the sale would be by a dealer within the State. If, therefore, the goods were sold within the State of Madras by an agent of the kind mentioned in section 2(b) explanation of the non-resident owner, the agent being resident of the State of Madras, the sale would be deemed to be the first sale, provided the condition about the sale after import of the goods into the State of Madras was fulfilled. Unfortunately no investigation of facts has been made either by the Tribunal or by the High Court on these important questions about the authority of the agent negotiated the sale transactions. They have also not determined whether the property in the goods passed within the State of Madras so as to constitute a sale effected in the State of Madras, nor has it been found whether the goods were sold after they had been imported within the State.It may be observed that a resident agent of a non-resident carrying on the business of buying and selling goods within the State of Madras may, for the purposes of the Act, be deemed by virtue of section 14-A(i) to be "the dealer", and liable to pay tax. But the fiction created by section 14-A(i) making an agent of a non-resident a dealer, for imposing upon him the liability of a dealer, does not make every agent a dealer for all the purposes of the Act within the meaning of section 3(2). To claim exemption under section 3(2) on the plea that he was not the first dealer, the assessee had therefore to prove that the agent of the non-resident who negotiated the sale of goods to him was an agent of the kind mentioned in section 2(b). On this part of the case, there is no finding7. In the absence of clear findings recorded by the taxing authorities and the High Court, we are unable to decide this appeal. The averments made by the assessee in paragraph 5 of the affidavit which we have already set out are also vague and indefinite, and in paragraph 6 only a proposition of law is asserted on certain assumptions8. The judgment of this Court in M/s. Gilda Textile Agency, Vijayawada v. The State of Andhra Pradesh and Another ([1962] 13 S.T.C. 738.), on which counsel for the assessee relied, does not assist him. In that case M/s. Gilda Textile Agency, who were indenting agents in Andhra Pradesh for cloth merchants residing outside Andhra Pradesh, booked orders, forwarded them to the principals, and received commission on sale of goods despatched to Andhra Pradesh. This Court, agreeing with the High Court, held that the non-resident principals were carrying on the business of selling goods in Andhra Pradesh and that the appellants as their agents were liable to be assessed to tax under section 14-A of the Act. But there is nothing in the present case to show that the non-resident owners of goods were carrying on business of selling goods in the State of Madras through their agents.We are of the view, having regard to the circumstances, that the case should be remanded to the High Court to determine the questions whether the agent of the non-resident supplier was the agent covered by the explanation to the definition of the word "dealer" in section 2(b), whether the property in the goods purchased by the assessee passed within the State of Madras, whether the sale was effected by a dealer resident within the State of Madras, and whether such sale took place after the goods were imported within the State of Madras. The High Court after determining those questions will proceed to dispose of the claim made by the assessee according to law. The High Court may, if it is necessary, call for a finding from the taxing authorities on those questions.