Case: Delhi Cloth And General Mills Co. Ltd. Etc Vs. Commissioner Of Sales Tax, Indore

The assessee is a dealer in Vanaspati. The facts found are that while selling Vanaspati, the assessee charged the sales tax separately and collected the same from his buyers. To each of its buyers it issued a receipt in respect of each sale transaction wherein it showed the price of the goods as such and the sales tax payable on the price of those goods. In the turnover returned it did not include the sales tax collected by it from its buyers but the authorities under the Act as well as the High Court held that sales tax collected by it from its buyers was a part of the price of the goods sold and therefore the same will have to be taken into consideration in computing its turnover. The assessee is challenging that conclusion.

Court's reasoning:
7. In view of the definition of sale price all that we have to see is whether the collection of sales tax by the dealer from his purchasers can be considered as valuable consideration received by him for the sale of goods8. Under S. 4 the liability to pay tax is that of the dealer. The purchaser has no liability to pay tax. There is no provision in the Act from which it can be gathered that the Act imposes any liability on the purchaser to pay the tax imposed on the dealer. If the dealer passes on his tax burden to his purchasers he can only do it by adding the tax in question to the price of the goods sold. In that event the. price fixed for the goods including the tax payable becomes the valuble consideration given by the purchaser for the goods purchased by him. If that be so, the tax collected by the dealer from his purchasers becomes a part of the sale price fixed, as defined in Section 2 (o).In some of the Sales Tax Acts power has been conferred on the dealers to pass on the incidence of tax to the purchasers subject to certain conditions. Those provisions may call for different consideration. In the Act there is no such provision except S. 7-A which was introduced into the Act by Madhya Pradesh Act 23 of 1963. That provision would have relevance only in respect of the assessment for the year 1963 6410. In these appeals, it is not necessary to examine the relevance of that provision. But that provision does not, give any statutory power to collect sales tax as such from any class of buyers. There is no other provision in the Act which confers such a power on the dealers. Unless the price of an article is controlled, it is always open to the buyer and the seller to agree upon the price to be payable. While doing so it is open to the dealer to include in the price the tax payable by him to the government. If he does so, he cannot be said to be collecting he tax payable by him from his buyers. The levy and collection of tax is regulated by law and not by contract. So long as there is no law empowering the dealer to collect tax from his buyer or seller, there is no legal basis for saying that the dealer is entitled to collect the tax payable by him from his buyer or seller. Whatever collection that may be made by the dealer from his customers the same can only be considered as valuable consideration for the goods sold14. From all these observations, it is clear that when the seller passes on his tax liability to the buyer, the amount recovered by the dealer is really part of the entire consideration paid by the buyer and the distinction between the two amounts, tax and price - loses all significance15. In support of his contention the appellant relied on the decision of the Madras High Court in The Deputy Commr, of Commercial Taxes, Coimbatore v. M. Krishnaswamy Mudaliar and Sons (1954) 5 STC 88 = (AIR 1954 Mad 856  ). Therein on an interpretation of the relevant provision of the Madras General Sales Tax Act, the court came to the conclusion that the sales tax which the dealer was authorised to collect from his customers was not a part of the sale price received by him. This conclusion was primarily based on S. 8 (b) (1) of the Madras General Sales Tax Act, 1939. There is no similar provision in the Act. Therefore it is not necessary for us to consider the correctness of that decision.